Pg
169 - Hamilton makes reference to Newfoundland in 1933 becoming the
first nation to be invaded by economic sanction.

Pg
170/1 We decide to not become the next Newfoundland!

Pg
172 - World War II saved us from the same fate as Newfoundland.

Pg
174 - The test of time has proven the Keith Sinclairs opinions of
John A Lee to be very misguided.

Pg
180/1 - The blackmail begins, Nash
protested against point 1 (4) that it was astonishing: 'You are
taking charge of our country. Surely we have rights.'

..............This
must have been one of the strongest threats used by a British
minister against New Zealand.

Pg
186 - British media describes terms of loans as "Blackmailing."
Attempt to use your own money backed by your own resources, you face
the Central Bankers sanctions.

Pg
189 - How World War II saved New Zealand economy.

Pg
209 - Money can always be found for war, but not for peace.

Pg
226 - The economic cost of war.

Pg
235 - The physical cost of war.

Pg
241 - War over, victors meet at Bretton Woods to plan future of
world. New Zealand appointed financial advisor from Bank Of England.

Pg
243 - New Zealand had deep suspicion of IMF. Time has proven them
right as the benefits stated have turned out to be quite the opposite.

Pg
248 - New Zealand signs for its supposed independence in 1947

Pg
252 - Nash objects to policies suggested by America "
it has the appearance of serving the expansionist aims of economic
imperialisms."

Pg
272/3 - British financiers blackmailed New Zealand prior to the war,
yet after the war we sell them discounted product and give up our
trade advantage to assist the "Mother Country" out of its
debt crisis.

Pg
288 - New Zealand economy saved by war again(Korean war wool boom)
anyone in the world protesting the current international financial
system labelled communist and National Party ram through draconian laws.

Pg
294 - 1954 Labour Party policy state to control banking and credit,
to introduce Pay As You Earn tax system.

Pg
305 - Balance of Payment Crisis in every election year between 1946 -
57.

Pg
342 - Fight for Economic Nationalism and be labelled a Communist by
the banking empire, nothing has changed today!

Pg
351 - 58,000 New Zealanders signed a petition against joining the
IMF, were they wrong or were they right?

Pg
75Although the local LRC had told him that in his electorate
there was little interest in land policy could not resist
expatiating on his favourite themes, land tenure and land
transfers. He
explained the iniquities of insurance companies and the power
wielded by banks. He covered in detail the history of the Bank of
New Zealand, which Seddon had saved from liquidation in the 1890s.
In 1925 Nash wrote a pamphlet on this subject, Financial Power in
New Zealand. The Case for a State Bank, thought that a State Bank,
with an agricultural credits department, was a first priority, so
that the Associated Banks should not continue to exercise their
politically irresponsible control of credit for the benefit of
shareholders.

-75-

Pg
95 -The
policy was explained in Holland's Address-in-Reply speech in
September 1932, was published by the Clarté Book Shop as a
pamphlet, The Way out of the Labyrinth.
He said that currency reform alone could not end unemployment, but
must play a part in a scheme of social and industrial
reconstruction. He quoted Keynes and other economists to argue
that increased purchasing power, not deflation, was what was
needed.
Though he thought the issue of bank notes, based on the volume of
goods and services, could be increased, he was not advocating
inflation, but state control of credit........ The
main change in Labour policy was the emphasis on credit and
banking. This was not altogether new. The party had since 1916
advocated setting up a state bank to reduce the cost of credit
and--still an aim in 1931--to control the issue of bank notes.
The historian of the Reserve Bank has pointed out the irrelevance
of the latter aim in New Zealand, where bank notes were only a
small part of credit. Nash
had, however, come closer to the idea of a central bank in his
pamphlet, Financial Power in New Zealand, in 1925,when
he argued that it should control the level of credit in the
community ...........Labour's new policy went much further in
stressing public control of credit. Credit reform had now moved
alongside a humanitarian welfare programme to form the twin
centres of Labour policy. The socialists of 1913 had become an
anti-bank party. Instead of attacking capitalism they were
attacking, and intended to reform, its financial structure. And
the aim was to cheapen and extend credit within the capitalist
system.

-95-

Pg
97/8 -

Some
of the phrases in the party's 1931 election manifest echo the note
of Nash's --or Savage's--sentimental optimism, sounded even in
'the worst conditions: 'We have wonderful natural resources'. But
the emphatic stress on credit, again, obviously derived from the
credit reformers, such as the president of the party, H. G. R.
Mason. asserted, 'The flow of credit ...has been blocked'; the
Labour Party 'proposes to use the nation's credit for
reconstruction purposes'; 'Credit is the first essential'. A
central bank would be established to control credit resources.
However, there was a credit antidote in the same bottle. The
manifesto twice asserted that the necessary extra credit could be
raised under existing banking laws. This enabled Labour speakers
not enamoured of daring finance to proclaim, as Fraser did, that
there would be no departure from sound finance, 'no rash
inflation, no repudiation', equally, it permitted candidates to
stress credit to their liking.
In Wellington, on 4 November, Holland made an attempt to rival
Ward's successful £70 million loan proposal of 1928 was not
announcing party policy, and it seems that his political grip was
weakening. The state would intervene to provide funds for
development. Pending the setting up of a Reserve Bank, and under
existing banking laws, Labour would raise £25 million in three
years, partly by relaxing the laws regulating bank note issue,
partly by 'employing methods somewhat similar to those adopted
during the war'. He did not make it clear whether there was to be
an internal loan or whether the government would borrow direct
from the banks, but in either case credit would be increased.

-98-

PG
101 -

In
1930 B. C. Ashwin, of Treasury, had observed that New Zealand
sterling funds, earned by exports, were being used for Australia's
benefit-and 'unfairly to the people of this Dominion'. Most of the
banks were 'foreign', both owned and directed, and there was much
hostility to them. A Bank of England official, Sir Otto Niemeyer,
who was invited to New Zealand to discuss its exchange problems,
suggested that a central bank should be set up to regulate the
monetary system. The need for such a bank had been discussed in
the nineteen-twenties and its creation had been advocated by the
Labour Party. The Coalition government did not, however, implement
this recommendation until Coates became Minister of Finance in
1933. He then set up the Reserve Bank, extending its objective to
a more general one, 'that the economic welfare of the Dominion may
be promoted and maintained', response to these measures was mixed.
It thought that the Reserve Bank should be state-owned and
directed, not partly owned by private shareholders.

PG
103/4 -

'The
popes are in retreat', Lee wrote to his wife; it was 'a complete
victory for the free money advocates'; there would be 'some sore
sad hearts for a few days', far as Savage was concerned, the
soreness lasted to his death.

In
a debate next day, though caucus had agreed that members could
mention the loan proposal, Nash did not speak 'cut of
consideration for the views of the other members'. Holland moved
that bank credit should be used for industrial development, while
Savage spoke of the need for peace credits, like those in war,
formulation sufficiently vague to support the caucus majority,
while sticking to his guns.

There
was a widespread acceptance, except among the politically and
economically most conservative, that what was needed to alleviate
the depression were some inflationary measures to stimulate the
economy. But in what form should the stimulus be administered?
Coates had tried devaluation. Within the Labour Party there was a
widening difference of opinion. Fraser and Nash agreed that there
was need for expansion. The latter spoke of a shortage of
'spending power', they believed that inflationary measures should
be carefully controlled. They could not swallow the Social Credit
doctrine that there was a permanent shortage because of a
congenital defect in the monetary system.

Nash
was strongly opposed to extensive 'credit creation', fresh
currency issues, and unrestrained inflation. He thought bank
advances could be much extended--the banks' lending policies were
very conservative. He inclined to think that much of the necessary
credit could be obtained from local institutions such as the Post
Office Savings Bank, State Advances, and the state insurance
office. Basically he believed that economic development should be
paid for mainly from taxation and loans, which should be raised
locally and not overseas. He believed in balancing the budget,
with which Holland agreed (although they favoured inflationary
measures in other areas, such as guaranteed prices). On such
points his views could be, and were, called conservative by the
currency reformers, or by anyone who thought Social Credit was
left wing. But he sometimes spoke in terms very like theirs. In
1934, for instance, he advocated the nationalization of all banks
and said that credit must be controlled in the interests of the
community as a whole.

Nash
had a much clearer and more realistic conception of how the
economy in practice worked than did his critics. 'Our
income is conditioned by the return we get for the produce we send
overseas', he said flatly to the 1934 Monetary Committee, was not
the only factor, as he realized.
Nevertheless, New Zealand was exceptionally dependent on exports
of meat, dairy produce, and wool, almost all to the British
market..............
In 1932 the Social Credit Movement held its first national meeting
and set up a national organization to spread the gospel, rebuff
and ridicule, its persistence ever since is significant in the
context of New Zealand politics. It has offered plenty for
nothing. It has been the country's Aladdin's Lamp, golden-egged
goose, state lottery, and 'cargo cult'.

The
Labour leaders were of course perfectly conscious of Social
Credit's growing appeal. Mason wrote to the assistant secretary,
Dave Wilson, in 1933 that the movement was going through Auckland
like a plague. They would have to convince its adherents that
Labour would give Shylock short shrift, too, stressed the need to
placate or attract them, Labour
Party member said that 'Douglasism' was an 'avalanche'. He thought
Labour should add the word 'Social' to its credit policy
statement. Creditors, with no political party of their own,
pressed the Labour party from within and without. One of the
Labour credit reformers, W. E. Barnard, wrote to James Thom in
1932 that five of the branches near Napier wanted Labour to adopt
a Social Credit policy. When Douglas visited New Zealand in 1934
Barnard thought the party should welcome him, but the Executive
rejected the idea, the leaders were as conciliatory as possible.
Nash wrote to one devotee that Douglas had made 'a splendid
contribution towards the reconstruction of our Monetary system',
but he could not quite accept his proposed method of 'putting the
matter in order'. 1933 a Social Creditor was allowed to address
the Labour conference. 1932 Nash, Savage, and Jordan held a
meeting with the members of the ( Social Credit) Auckland branch
of the Farmers' Union. The chairman was Colonel S. J. E. Closey,
leader of the SocialCredit
Movement. They passed resolutions on the need for public control
of the financial system, and increased payments to farmers and
workers and unemployed. loose, unofficial alliance was formed,
which lasted until about 1936. This gave Labour an extra
organization, with touring lecturers spreading a gospel rather
like Labour's.

Pg
111The 1935 election, which was one of the most exciting in
the country's history, rivalled by those of 1890 and 1949, and one
of the most momentous in its results, was held on 27 November.
Excitement is difficult to recapture. The feeling arose from the
depression: the depression was the issue. Such an election is the
civil war of a democracy, no less decisive in its results for
leaving the losers their heads.........Nash wrote two of the
principal pieces of Labour propaganda. The main one was the
election 'manifesto'. He sent the first draft to Joe Savage on 3
November: 'It's been a devil of a job writing it and you should
watch out with Fraser and the others [on the Publicity Committee]
that every word will help.' (The party had no paid ad-men, PR men,
or other synthetic image-builders in those days: it had to roll
its own publicity.) Although

-111-

Pg
112Nash was the author, he thought it too long for a leaflet,
certainly
the four large pages of dense prose were not easy reading, while
contrasting favourably in this respect with more modern specimens
of Labour electoral prose. Interested voters presumably contented
themselves with the summaries in newspaper headings and in
speeches.

The
main points were guaranteed prices, a statutory minimum wage, a
national health and superannuation scheme, and greater educational
opportunities. State
control of credit was stressed 'to control the flow of credit, the
general price level, and the regulation of foreign exchange
operations'. The Reserve Bank would be nationalized. Reciprocal
trade agreements were to form the basis of guaranteed prices.
Foreign policy would aim at promoting international cooperation
and the League.

In
Nash's mind the main points in the 'manifesto' were joined
together in a coherent policy arising from the Christian and
humanitarian doctrines he had believed in since he was a young
man. The 'first charge'--still his favourite phrase--on the
community was to be the care of the worker, the old, the young,
the sick. A statutory minimum wage, increased child allowances,
pensions for the needy, and a national health scheme would
redistribute wealth so that everyone would be cared for. People
who served would receive an equitable share of what was produced.
He
agreed with the credit reformers that the ills of society lay in
maldistribution, not in production.

-112-

PG
123 XI Minister of Finance 1936

Nash's
position, as Minister of Finance, was not easy--trapped between
the election rhetoric of Savage, Lee, or Langstone and the
judgement of moderate men, like himself, that the British, the
voters, and the economy would only stand so much printing.
Government
by printing press was a relatively novel idea and such examples as
came to mind were not encouraging. Savage had no firm grasp of
economics beyond the need for higher wages and pensions. In any
case, he was always willing to let his rhetorical heart rule his
economic head to the benefit of his political position. More than
once Nash had to make his actions conform, as comfortably as might
be, to his leader's ill-considered pronouncements. ..............

Just
after the election Savage announced that the government would
restore wage cuts, expand pensions, guarantee farmers' prices, and
revalue the currency. The English Economist commented that
deflationary exchange..................

-123-

Pg124Nash
reported on his plan to nationalize the Reserve Bank, which was
closer to Members' hearts than the subtleties of exchange
rates.............. The government's first legislation was the
Reserve Bank Amendment Act. In moving the second reading of the
bill on 3 April, Nash spoke of the

-124-

Pg
125controversy
about whether a central bank should be free of political control.
An Associated Banks' bulletin had spoken of the political bias
unavoidable in nationalized banking. Nash argued that this
impugned the integrity of every MP, and asked why 'so delicate a
set of machinery' as the credit and currency machine could be run
by private bankers, but not by the elected men who ran, for
instance, the health and education systems of the community.

The
state bought out the private shareholding of the bank. The
sanctity of contracts, which Nash acknowledged, ensured that they
received a good price. His aim was 'absolute control of our
monetary system'. The Governor of the bank, Leslie Lefeaux, a
stiff Englishman, who had been a senior officer of the Bank of
England, and had been appointed on the recommendation of its
Governor, Montagu Norman, believed that he had some degree of
independence from government control. Nash now sought to define
the bank's relationship to government: its function was 'to give
effect as far as may be to the monetary policy of the Government
as communicated to it from time to time by the Minister of
Finance', this purpose, and to promote 'the economic and social
welfare of New Zealand', the bank was to 'control credit and
currency' and also all the overseas funds earned by exports. Nash
did not, however, intend to introduce exchange controls at once:
'we have in general such confidence in the men who are worth while
in the Dominion that we do not think they will take any money
away....' He had been warned by a banker that 'Capital is a very
"shy bird" and takes fright and flight very quickly',
and had looked into the possibility of blocking transfers of funds
through the purchase of Australian shares, but for the moment he
was optimistic about business confidence in the government,
government would use credit to enliven the economy, but neither
too much nor too little.

Coates
asked who was to decide on the dosage, cabinet, or the minister,
or whether the views of the bank would be considered. Nash
defended the principle of a coordination of state and private
interests. But he was not heated. Lee thought that Nash's speech
was too moderate, that he had a 'slight desire to play to the
orthodox whom he can't win rather than to the revolutionary who
would cheer', of course Nash was trying not to alarm business and
banks more than necessary.

The
government wanted to keep interest rates low. In September Nash
told Lefeaux that he wanted to convert an internal loan and raise
money for State Advances at 3¼ per cent. Lefeaux informed the
Board that in his view the amounts needed could not be raised at
that rate. Nash had appointed an old friend, a Dunedin
cabinetmaker and city councillor, Mark Silverstone, to the Board.
He wrote to Nash that, far from accepting the minister's
direction, the Board was hostile and obstructionist and passed
resolutions endorsing Lefeaux's views. Nash was about to go to
London and Lefeaux argued that a failure to raise the money would
weaken his negotia-

-125-

Pg
126ting position there. Nash gave in to some extent. The State
Advances Loan was made at 3¼ per cent but the conversion at 3½
per cent. This
caused strife in caucus, which did not like dictation by bankers.
In the event Lefeaux's judgement proved sound. Treasury reported
to Nash that the 3¼ per cent loan was a fiasco. But the episode
was one which led Nash to determine to strengthen the government's
control over the bank. Lefeaux believed that while government
decided policy, the bank should decide how to implement it. As
early as August, however, in instructing the bank to create credit
of £5 million, Nash also specified how this was to be done.

-126-

PG
130

The
third leg of Nash's financial policy was the State Advances
Corporation Bill.State
advances to settlers--in other words cheap loans to farmers --had
been introduced by the Liberals in 1894. Savage had announced that
he was taking over where Seddon left off in 1906. In this case
Labour returned to somewhere near that position. The Coalition had
replaced the old State Advances Office with a Mortgage
Corporation with private shareholders. The state now bought these
out. The directors were to administer the Corporation under the
minister's direction. One of Nash's aims was to keep interest
rates down. And he hoped that the Corporation would stimulate the
building of houses, up to 5,000 a year. He hoped to stop the
land-agents and land-grabbers from reaping the profits--and
managed to get in a reference to 'usehold' as a desirable tenure
for householders. The Corporation would also administer government
loans to promote industries.

-130-

PG
134It
is evident that Nash had given a great deal of thought to this
whole subject. His vision of New Zealand, British Commonwealth,
and world trade was, however, one very distasteful to the British
government which was committed, though more notably in theory than
in practice, to a return to freer trade, regulated by market
forces. The
United States government, .............

-134-

Pg
135in the person of Cordell Hull, was at that time seeking to
revive world trade by negotiating tariff reductions. In American
or British leaders' eyes, Nash's dream of cooperation appeared
liked a Nazi or Communist nightmare. ….............

When
the depression began most governments heard the cry, sauve qui
peut, and adopted various restrictive measures intended to protect
their domestic economy, whatever happened to any other country.
High tariffs, quotas, competitive devaluations, exchange controls,
became the order of the day. There was a great drop in the volume
of world trade.
New Zealand, which had one of the lowest tariffs in the world, the
highest volume of trade per person, and a minute local market, was
singularly vulnerable and paralysingly dependent on Britain, which
took almost all of its exports --almost all of which were products
of the cow and the sheep.

Britain's
response was to hope that the Empire trade might prove its
salvation. In 1931 it introduced a protective tariff and, at the
Ottawa conference, accepted the idea of imperial preference which
the Dominions had been advocating for forty-five years and
practising for thirty or so. At Ottawa--by a series of bilateral
agreements--the Dominions gained exemption from the new British 10
per cent duty, while Britain retained and extended her
preferential position in Dominion markets. Tariff
protection against British manufactures was to be given only to
Dominion industries 'reasonably assured of sound opportunities for
success'. Even then, British producers were to be given 'full
opportunities of reasonable competition'. This agreement, which
was the basis of New Zealand's privileged access to the British
market, was generally ignored by New Zealand advocates of currency
reform and rapid industrialization. In regarding the Commonwealth
as an economic unit, the agreement assumed some specialization in
production in the different countries.

The
next four years were stormy, for the Empire unit functioned
imperfectly.
The Dominions could not absorb all Britain's exports, so the
British had to consider foreign points of view, such as those of
Argentina, a chief rival of the Dominions. Moreover, the British
government moved in various and sometimes mysterious ways to
protect British farmers. First there was a threat that the British
would impose quotas on Dominion and foreign supplies of meat.
Then, in 1935, the British proposed to impose a levy on meat
imports to subsidize home industry. As the chiefsupplier
of sheep meat New Zealand would have had to pay the largest share
of the subsidy. In 1935 the British government dropped this
proposal temporarily--the levy would not be introduced for at
least three years. The Dominions had to continue to regulate
supplies to the British market instead. At the same time, the
British government introduced subsidies on local milk and cheese.

-135-

Pg
136W.
K. Hancock commented, in 1940, that since, counting invisible
items, Britain had a favourable balance of payments with most
Empire countries, it was naive to suppose that she would accept
Nash's principle of balancing agreements, which would have slashed
her export trade......9

Though
they made speeches about the liberalization of trade, the British
leaders had been as affected as anyone by what Hancock called 'the
economics of siege'. ….....

Generations
of British politicians and civil servants have left minutes and

-136-

Pg
137memoranda,
now stored in the Public Record Office in London, about the visits
of colonial politicians. Their frame of mind was usually that of
weary, impatient schoolmasters; their tone tart and superior. It
did not alter much if they were dealing with a rough ignoramus or
someone much better read and articulate than most of themselves, a
man like Alfred Deakin of Australia, for instance. Nash suffered
from a treble disability: he represented a Dominion, a small one,
and he was easily 'placed' in a hierarchical society --as a
Midland shopkeeper. If he suffered from moving in higher and
sniffler circles he did not show it; on the other hand, without
being a sycophant, he enjoyed meeting and was impressed by the
great. The fact that he had come at all was irritating to start
with. The British government had informed the New Zealand, before
he left, that it was not its policy to enter into balancing
agreements, except in 'special circumstances' (that is, ones from
which the practical gain to Britain outweighed the loss in
principles), nor to give New Zealand different treatment from the
rest of the Empire. The New Zealand reply had ignored British
views. The Board of Trade thought the first task would be to
persuade Mr Nash 'that we cannot re-cast our general trade policy
to suit New Zealand's convenience'.

The
British 'establishment's' attitude to the New Zealand government
was hostile. It was also, in some very unsympathetic ways well, or
at least directly, informed. Lefeaux apparently regarded himself
as an agent of the imperial government and the Bank of England.Lord
Balfour of Burleigh, a banker, visited the Dominion and after a
conversation with Savage wrote that he was an 'honest idealist',
willing to try anything to achieve his aims: 'His attitude
suggests to me that of a small boy in a power station happily
pulling one switch after another to see what happens. One day he
may pull a switch which will fuse the whole of the works'.Only
Fraser and Nash, of the ministers, at all impressed British
visitors and officials.

-137-

Pg
156The day after the election Fletcher wrote offering to
assist the government with housing. He was invited to Wellington
to talk with the three leading ministers and he drew up some plans
for building houses in numbers and quickly. The
government--particularly Nash--wanted to buy Fletcher's
organization, as the basis for a government department of housing
construction, and to appoint Fletcher as its director. (In the
same way, the government did purchase the plant, premises, and
stock-in-trade of Picot Brothers, the largest wholesale dealers in
primary produce for the local market, as a beginning for an
internal marketing organization for dairy produce, bacon, eggs,
and honey.)At
first Fletcher would not agree, and various other suggestions were
considered, including his own proposal to build all the houses at
a fixed net profit per house.12But
in 1937 and up until the end of 1938 Fletcher gave serious
consideration to the proposal. He informed Nash that he had valued
the total assets and stocks of his firm (at £130,000) and put
forward proposals that he should become Director in Charge of a
State Building Construction Department. The
negotiations again came to nothing. Fletcher did, however, build a
very high proportion of the state houses, though not without
difficulties, for at the same time he was advising the government
and public servants on the whole programme, which led to suspicion
among the latter that his advice was in his interests as
contractor.

Fletcher
discovered that, with rising wages and import prices, costs were
increasing rapidly. He found he was going to lose money on every
house, for no escalation clause had been included in his first
contract. In order to keep the project moving the government
guaranteed at the Bank of New Zealand a £200,000 overdraft for
one of his firms. Fletcher was widely criticized for making a
fortune out of state housing, but he said then and later that it
was his least profitable undertaking.

It
was recognized by the government that, without Fletcher's
experienced advice, and the new skills of his organization, state
housing would have taken much longer to organize. Nash and the
Under-Secretary in charge of housing, John A. Lee, both
acknowledged this debt.Fletcher
became a very big businessman by New Zealand standards, but his
restless energies were not all self-seeking. He had large ideas,
and a genuine interest in state housing. During World War II he
became Commissioner of Defence Construction.

Fletcher's
cooperation was very important to the government. The ministers
knew little about building and less about organizing and
administering a large scale enterprise like state housing. Indeed,
none of their large projects, guaranteed prices, welfare, or
housing, had been planned in detail or costed. In opposition they
had no research staff. This makes their achievements the more
remarkable: the distance between dream and action was so great.

The
other two people most responsible for state housing were Lee and

-156-

Pg
157

Arthur
Tyndall, an engineer, who was Under-Secretary for Mines, whose
appointment was recommended by Fletcher, tackled his task with
energy equal to Fletcher's. By February 1936 he had written a very
long report on overseas public housing and New Zealand's housing
problems. He also wrote a report on defence. Sir Alister McIntosh,
who assisted him, has remarked how few New Zealand ministers have
been capable of writing their own reports........

One
important influence Lee had was to insist that Reserve Bank
credit--£5 million was initially approved--should finance the
scheme. Nash sent him details of Manchester housing. Fletcher, in
England in 1937, looked into brick-making plant. Everyone worked
with enthusiasm. By September 1937 Savage and Semple and Lee and
Nash helped a tram conductor, Mr David McGregor, and his wife to
move into the first state house, in Miramar, in Wellington.

-157-

Pg159Lee
was by no means the sole source of the friction which intensified
in caucus from 1936 to 1940 but he was, in personality, its focus;
he pressed his opinions and rivalry furthest. In him the conflict
was given dramatic form and literary expression in a series of
pamphlets and books written over the years from 1938 to 1975.

Essentially
the struggle was one by the credit reformers in the party to force
their policies on the leaders. Two of them were in cabinet,
Langstone and Mason. Outside were able men, like Lee and D. G.
McMillan, a general practitioner just elected to parliament. There
were a number of other credit reformers among the new MPs. In 1937
they came to form a fairly stable group of dissidents in caucus.
Since one of their leaders was Lee, and their principal interest
was credit, the government's financial policy and the Minister of
Finance himself were usually in or near the centre of the battle.

In
1937 one new MP, Jack Lyon, twice moved that the Bank of New
Zealand should be nationalized. This was a step dear to the heart
of the credit reformers, who were repeatedly to return to the
attack, but this time Lyon was fobbed off by Savage. Lee gave
notice of motion that funds for local body loans and conversions,
State Advances loans to settlers and workers 'wherever the
security warrants', for new industries and for all capital
(public) works should be provided by the Reserve Bank.This
was at a time when, as Under-Secretary in charge of housing, he
was complaining of rising costs and a shortage of skilled workers.
He called cheap loans to local authorities 'Socialist funds for
Socialist Local Bodies'. He also wished to lower or hold existing
interest rates. Instead of borrowing money locally, as Nash was
doing, he wished, in short, to find it at the Reserve Bank. This
was in line with his view, expressed in a pamphlet in 1934, that
'Each penny of bank created credit is stolen from the community.'
In his eyes Labour policy was to be based on credit creation. But
in the eyes of Nash and Fraser, Reserve Bank loans were to be used
as little as possible. Moreover,
it was difficult to hold down interest rates while borrowing on
the local market. This question had been fought in 1936, and a
State Advances issue at 3¼ per cent had been a fiasco. B. C.
Ashwin of the Treasury estimated, in April 1937, that some £20
million would have to be raised in loans--'In fact low interest
rates and heavy borrowing are a contradiction in policy.'

Lee,
too, was pushed off by Savage. The only point in his financial
proposal to be voted on by caucus was the nationalization of the
Bank of New Zealand. The voting was 14 to 14 and the motion was
lost on the Prime Minister's casting vote.

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Pg
169In denouncing the increase of state controls, which was
very marked under the Labour government, National had not struck a
note which the public heard loudly. It has, indeed, rarely shown
signs of fearing the state. Nor, in a period of rising prosperity,
was there much response to Opposition denunciations of rising
taxes. During the budget debate, Hamilton had pressed this line of
attack, but, in fact, Nash had not increased income taxes in 1937
or 1938. Hamilton
had come nearer to finding the government's Achilles heel when, in
the same debate, he referred to the declining overseas funds, and
referred darkly to the fate of Newfoundland, which had borrowed
and spent too freely, and finished up in 1933 in the hands of a
receiver, in the form of a British Commission, losing its
independence.

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170

XIV
The Exchange Crisis 1938-9

During
the depression New Zealand built up in London a large reserve of
sterling funds, not spent on imports because of a lack of
effective demand among the poor and the hungry. These overseas
assets totalled sterling £38 million in December 1935. They
drained away, especially in 1936. Then, between 30 April and 30
November 1938, they declined from £28.6 million to less than £8
million.1these
funds, which paid for imports, had been regarded as a key
indicator of the state of the economy, and had long been its
unacknowledged regulator, was a dangerous situation.

For
most of 1938 the government turned a blind eye towards the London
balances. Savage and Nash denied that there was a flight of
capital or that the sale of foreign exchange was restricted, and
attributed contrary assertions to a lack of patriotism and a
desire to damage the country's credit. But that was being damaged
by figures, not words.

Even
before the election there was great public unease about money. The
country was swept by rumours that the deposits in the Post Office
Savings Bank were not safe. An officer of a trading bank wrote to
Nash in November that they were trying to reassure their clients
and telling them to leave their money in the Savings Bank. There
were heavy withdrawals. Similar fears encouraged a flight of
capital abroad.

The
transfer of these funds abroad, for instance by purchasing
Australian shares, had attracted Nash's attention in 1936.
Probably this movement was a result of people having left funds in
New Zealand to benefit from Savage's promised revaluation, and
transferring them when it did not eventuate.

An
economist of the time estimated that the 'panic' export of private
funds accounted for more than half the loss of reserves in 1938.
Whether he was correct it is not possible to say, there certainly
was a large-scale transfer of funds. Bankers and others wrote to
Nash about the requests for capital transfers and the unpatriotic
actions of some of the meat companies, for instance, who were
selling their funds to the highest bidders.

The
'flight of frightened capital' did not alone explain the economic
crisis. There had been considerable over-importing--import costs
exceeded export receipts by over £3 million in 1938. But, as Nash
explained, New

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171Zealand
needed about a £12 million surplus to service public debts and
make other payments. The increase in imports had been largely
generated by the government's expansionist policies: for instance
the public works programme created a demand for machinery. It was
not possible (as the credit reformers supposed) to divorce
internal from external expenditure.

To
conservatives, like Lefeaux of the Reserve Bank, the situation was
quite clear: the country was not living within its income, a
situation which could not continue indefinitely. The government
must refrain from inflationary measures, reduce expenditure to
match income. traditional response to a drop in reserves was for
banks to call up overdrafts, the government to introduce 'cuts',
reducing demand and producing unemployment. This, Nash explained
to an importers' conference in January 1939, the government had
declined to do or to, accept. Instead, it decided to 'meet our
commitments; maintain our living standards' and reduce imports by
introducing exchange controls and import selection.

There
can be no doubt that this measure, not taken until December 1938,
was belated. 1937 Nash had been collecting information on the
Danish system of controls. He had told caucus in November 1937
that exchange controls would be introduced, had told the British
in 1936-7 that this would be done. He was well aware that funds
were being transferred abroad through 1938. He claimed that the
situation did not become serious until November, but one reason
for the crisis was the lack of earlier restraints.

Why
had the government not acted? There were several reasons, of which
one was probably decisive. Nash had seen exchange controls
primarily as a consequence of a bilateral trade agreement with
Britain. He lost interest when his mission to London failed. The
British strongly opposed the introduction of such controls. They
would probably result in a breach of the Ottawa agreement, which
had promised British exporters the opportunity for reasonable
competition with domestic producers on the New Zealand market.
Regulation or selection might involve an effective prohibition of
certain British exports. Lefeaux was extremely hostile to exchange
controls, and argued against them on many grounds, faithfully
acting as the mouthpiece of British authority. Cannot be said that
Nash yielded to imperial views but he could not ignore them; he
had to give them due weight. For one thing, a large London loan
conversion had to be arranged in 1939.

Probably
the main reason why nothing was done for so long was that it was
election year. To admit that there was a crisis, to introduce
exchange or import restrictions, would have been an admission of
failure and a powerful stimulus to the Opposition. Mark
Silverstone, Nash's agent on the Reserve Bank directorate, had
written to him on 1 June, 'I can see serious trouble coming', but
he did not think Nash should act before the election. That he
postponed action for this reason cannot be proven, but

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172is very convincing. Certainly that was what John A. Lee
thought. The
introduction of Social Security had been postponed to win votes;
exchange controls so as not to lose them.

Nash
was frank in explaining the controls as due to the need to
conserve funds. Savage pretended that they were introduced to
'insulate' the Dominion from unfair overseas competition and to
encourage industrial development. This explanation was pressed by
W. B. Sutch. Allan Fisher wrote to Nash, 'Sutch tells me that it
is a mistake to suppose that pressure on London funds is the
complete explanation and that control is intended to be a weapon
of genuine socialist reconstruction with "selective
importing" as the key-note. (A ribald enquirer might ask,
selective by whom? by Sutch? which would no doubt be unfair).'

Some
Labour MPs, like D. G. McMillan and Lee, as well as Sutch, had for
some time seen import controls as the key to industrial growth.
However, they were not introduced as part of a large economic
strategy, but in an atmosphere of emergency. Ashwin of Treasury
and Wood of Customs advised that it was impossible to reduce
imports to the extent required to balance receipts and
payments--some £10 million to £12 million--without cutting
industrial raw materials and other essential items, endangering
employment and living standards. Other measures such as taxation,
local borrowing, and a reduction of public works would be needed;
a large rise in local costs and prices must somehow be avoided.

The
months from November 1938 to late 1939 were politically among the
most anxious and tense in Nash's political life. He had met the
fate of all but the luckiest of New Zealand Ministers of Finance.
In a small democracy with a dependent economy, in which the voters
expect glittering promises, the Treasury was the most vulnerable
position where able men and wizards of finance, like Julius Vogel,
Harry Atkinson, J. G. Ward, and Gordon Coates, trying to make the
ends of promises and economics meet, had fallen. To some extent
Nash was lucky. He was saved, not by the whistle, but the war.

While
he was trying to cope with the internal crisis, and soon with its
consequences in London, he was also at the centre of the biggest
storm the Labour Party has ever experienced. His financial
policies were under fire from almost every direction at once, but
undoubtedly the party criticism was the most wearing.

The
first caucus after the election, on 3 and 4 November, was the
occasion of a very unpleasant dispute. Nash outlined the financial
problem. McMillan and Anderton moved that a caucus committee,
including four credit reformers and three of the leading
ministers, be set up to investigate the financial crisis and
report back. It was scarcely the time for committees. McMillan
withdrew his motion, apparently after a heated debate, when Fraser
and Nash moved that cabinet should consider exchange controls,
embargoes, or tariffs, in that order of preference. If the former
were feasible,

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173cabinet would impose them without reference to caucus; if
not, there would be another meeting.

The
government had not adopted the dissidents' policies. They were now
trying to seize the power to implement them. Already two credit
reformers were in cabinet. They wanted a stronger representation.
In May 1936 Dr McMillan, a new MP, had moved that in future all
cabinet ministers should be elected. Savage had ruled the motion
out of order on the grounds that it was the present system, which
was quite untrue. The issue had smouldered for two and a half
years; now they were trying again. Lee now moved, at the meeting
in November 1938, that cabinet should be elected by a preferential
vote of all caucus members. According to him, Savage threatened to
resign. There
was an emotional debate, and the motion was carried by 26 to 22.
Savage said that he would not feel bound by the resolution, and
would refer the issue to the annual conference, was not
unreasonable, since the method by which cabinet was chosen was as
much a matter for the party as for caucus. In the event, however,
six members of the central executive attended the next caucus, in
early February, to submit the executive's own proposals for
selecting cabinet. A
joint caucus-executive committee then drew up rules which were
accepted. The leader was to be elected by caucus in the year of
each general election, and could nominate his own cabinet, but its
members had to be approved by a caucus vote. If any names were not
approved, members could recommend others to the leader. He would
then select those he wanted from among the nominations. These
names, too, had to be approved by caucus. It was an unwieldy
attempt to combine leadership with democracy.

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174

In
December Lee, Nash's Under-Secretary, launched a powerful attack
on Nash himself. He wrote a long letter to members of the Labour
caucus. Apparently W. J. Lyon, an Auckland MP and one of the
leading Labour credit reformers, intentionally or not, began to
circulate it. It was soon published, possibly by National
supporters, as a pamphlet, A Letter which every New Zealander
should read.

The
'Lee Letter' denounced Nash as a conservative blocking the
introduction of radical Labour reforms. It publicized caucus
disputes over pensions and said that Nash's was 'the greatest
opposition to the present Social Security Scheme'. But principally
it attacked his financial policy. Nash had adopted a 'god-like
attitude' and was persisting with financial orthodoxy against
party policy. He was denounced for not introducing exchange
controls earlier, and for not being more daring in his recourse to
Reserve Bank credit. Lee wrote, 'We took over the Reserve Bank to
free Labour development from capitalist debt', and asserted that
they should have used its credit to wipe out most of the public
debt. How London investors could be induced to accept a New
Zealand credit issue was not perhaps clear. Lee suggested that
loans should have been refunded at a much lower interest rate. He
always objected to paying interest to private investors to provide
for national development. He ridiculed 'the inflation bogey'. He
advocated further credit expansion--at a time when New Zealand was
suffering acutely from over-importing because of internal
inflation. Thus the cure for New Zealand's post-election hangover
was to be more of the stimulus that caused it. Someone wrote to
Nash that Lee had seen a man walk steadily after three whiskies
and refused to believe that a whole bottle might have a different
effect. The 1939 conference condemned Lee's action in issuing the
letter as a breach of party loyalty and discipline and passed a
vote of confidence in Nash and in his financial policy. But Lee
continued as Under-Secretary--sharpening up his pen.

Caucus
pressure was one factor which led the government to introduce
exchange and import controls, but not the principal factor. Given
the delay in acting before the election, even if the government
had been willing to adopt deflationary measures, some kind of
exchange controls or quotas had become essential.

One
of the government's main difficulties was that, to deal with its
extensive policies, it had very limited resources of
administrative skills and other expertise, whether among the
ministers or in the public service.
It had promised much, and could not deal with everything at once,
as caucus seemed to ask. For instance industrial development had
long been a plank in policy, one now especially desirable, to get
men off public works into more productive enterprises.

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Pg
179….....Apart
from rare loans to Dominions, lending abroad had almost ceased--80
per cent of a new Australian issue was left to the underwriters.
He told Nash it was impossible for the British government to lend
money for New Zealand's defence. Neither a government loan nor a
public issue was possible for the £10 million loan Nash wanted.He
should concentrate on dealing with the £17 millionconversion.
But he seemed to Phillips to have no programme but wait and see.
Phillips, Inskip, and Norman, Nash got the impression that some
funds might be offered for defence, but nothing more until the New
Zealand government provided for the redemption of the maturing
loan. Norman, suggested that a proportion of New Zealand's export
receipts should be set aside for this purpose.

Nash
began to receive conflicting or contrary advice from different
authorities, which was confusing, but at least showed that the
'establishment' was not single-minded, which must have been
encouraging. Kershaw of the Bank told him that it might be
possible to get a loan for defence, but the conversion loan could
not be considered until late that year. Inskip told him he should
deal with the conversion first.

It
must have been a disconcerting experience to find himself regarded
in England much as he regarded John A. Lee in New Zealand. Kershaw
lectured him on the iniquities of Reserve Bank credit and
excessive public works. While giving him little comfort, more
responsible people realized that something would have to be done.
New Zealand was discussed in cabinet on 21 June, said that New
Zealanders were beginning to contrast Britain's willingness to
give loans and credits to the Romanians, and recently to the
Poles, Turks, and Greeks, with her attitude to the Dominion, a
contrast which was not escaping notice in the Press said that Nash
should not leave without some help.
Another point was that Nash was in touch with the Labour
Opposition. Lord Halifax, the Foreign Secretary, said that they
were 'living in what was virtually a state of concealed war' so
that financial aid to the Romanians or Turks was really military,
not commercial. There was an Export Credits Guarantee Department,
which assisted British exports by underwriting private commercial
credits to foreign importers, and could guarantee New Zealand's
payments. Oliver Stanley said, in this connection, that he doubted
whether New Zealand would welcome a grant of an export credit
'under a scheme which implied that she was not credit-worthy'. The
Prime Minister, Chamberlain, said that this point would be met if
Stanley consulted with Inskip, Simon, and Halifax in deciding on
the exact amount of the increased figure for non-commercial
guarantees which parliament should be invited to sanction. Stanley
had presented a memorandum suggesting non-commercial guarantees of
up to £10 million should be raised. The Prime Minister had now
directed that New Zealand should be helped. Cabinet agreed.

After
a chilly beginning, in which most of the British with whom Nash

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180talked
offered (in the words of the Treasury brief for ministers),
'little or nothing',negotiations
now entered a second phase in which the British set the most
arduous terms for assistance.The Board of Trade was under strong
pressure from businessmen. The New Zealand High Commissioner's
office had been suggesting that manufacturers should take
advantage of the import regulations by setting up branch factories
in New Zealand. This idea, that British industry should export
itself instead of its products, was Nash's main idea about how
New Zealand could industrialize. He was at the time negotiating
with tobacco and tyre firms. It was a way of getting the capital
and know-how at once. The Federation of British Industries
protested strongly about this and even more at an offer that New
Zealand would lift embargoes on imports from firms willing to
leave the payment in New Zealand. The Federation said this was
'vicious' and called on the government to revise Ottawa. New
Zealand was not merely to pay a stiff price, but to be taught a
lesson.On 22 June Montagu Norman suggested to Nash that he accept
a short-term loan of £16 million repayable at £4 million per
year, and made a specific charge on New Zealand's export receipts,
strongly objected to accepting what was called 'a bond with a
charge', for it would be a public indication of distrust of New
Zealand's credit. He said he could not recommend his government to
accept unless some arrangement could be made to pay for imports
and defence. Next day Inskip committed the British government to
cover New Zealand's defence needs through the Export Credits
Guarantee Department. Zealand had almost always converted its
London loans when they fell due. Norman's demand was unprecedented
and onerous. It was doubtful if New Zealand could pay £4 million
annually. Nash protested vigorously against the 'specific charge'
at a meeting with the British ministers on 29 June, but Simon said
the terms were necessary in Norman's opinion, if the loan were to
attract investors. The ministers were also adamant that they would
not lend direct to the New Zealand government for import payments
and that the Export Credits Guarantee Department must endorse
bills covering individual contracts and provide the money only
when a payment fell due: 'This was the procedure applied in the
case of Russia, Romania and other countries'. In
the afternoon R. S. Hudson, the Parliamentary Under-Secretary of
State for Overseas Trade, was even tougher. He presented Nash with
a set of demands:1.The New Zealand Government to declare

1.
that present import control scheme is temporary and will be
abandoned as soon as financially possible;

2.
that uneconomic industries will not be set up, nor will existing
industries be extended to manufacture goods which cannot be made
economically in New Zealand;

3.
that protection, whether by quota or duty, will not be afforded to
New Zealand industry in conflict with Ottawa commitments;

4.
that some undertaking should be given with regard to the granting
of monopoly of manufacture to individual concerns or to existing
manufacturers to the detriment of other interests in export,
import and manufacturing.

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1812.
The New Zealand Government to agree to take into consultation
representatives of the appropriate United Kingdom trade
association whenever a proposal is under consideration for
establishment or extension of New Zealand manufacturing.

Nash
protested against point 1 (4) that it was astonishing: 'You are
taking charge of our country. Surely we have rights.' Hudson
replied, 'yes, and we have too.' Hudson said 'You have broken your
promise given at Ottawa'. Nash also protested at the idea of
consulting British businessmen on New Zealand industrialization.
He said it was futile--no manufacturer would advise the exclusion
of his own trade.

Hudson
threatened to apply a 'Clearing and Payments Agreement', a
procedure whereby a proportion of New Zealand's export receipts
defined by the British Government would be paid into a special
account and earmarked for the payment of British exports to New
Zealand specified by the British government. Despite its dislike
of bilateralism, Hudson said, Britain had been forced to negotiate
such agreements with Germany and Italy, specifying what goods they
would take. Nash said Britain already set a limit to New Zealand's
exports to her markets. He did not see what right she had to
control New Zealand's imports.

This
must have been one of the strongest threats used by a British
minister against New Zealand.Nash
cabled to Savage that they might agree to give assurances about
'non-economic' industries (and he and the British had discussed
what they might be) and to consultation with the British on new
industries, but that they should not agree to the annual 'specific
charge'surely
a new form of the 'first charge' to him.

Nash's
and New Zealand's cup of humiliation was not yet full. On 5 July
Norman laid down his terms. The only consolation he offered was
that in two years it might be possible to borrow long term to
replace the commitments he now suggested. There would be a
five-year £16 million loan. Every month £266,666 13s. 4d. from
New Zealand's export receipts (£3.2 million per year) was to be
placed in a special account. The Bank of England would publicly
announce monthly the receipt of these payments --the 'specific
charge'! The Reserve Bank was to give 'irrevocable instructions'
to the Bank of England authorizing it to draw any deficit in
monthly instalments from the Reserve Bank's account in London,
then departed to Basle for a week to a meeting of gnomes and
bankers.

Savage
replied that Hudson's suggestion of a Clearing House procedure was
'intolerable'. Norman's demand that the Bank of England would
announce monthly that New Zealand had paid up was 'unnecessary and
humiliating'.

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Savage
underlined the harshness of the terms by reporting that if anything
like £4 million had to be repaid in 1940, after repaying the £2.5
million lent by the trading banks, interest on government and local
body loans and other remittances, only £35.8 million would be left
for imports, assuming that export receipts were about £55 million,
as in 1939. This would mean a huge reduction of £19 million in
imports, in comparison with the cut of about £8 million to £10
million which the government intended. It would disorganize the
economy and cause much unemployment.........

Pg
183

The
ten days had been very wearing by most people's standards. The
British took the view that the three loans were linked, as well as
being dependent on certain assurances. Consequently negotiations were
very involved. The
£5 million for defence orders placed in Great Britain was now
secure, but the British ministers would not fix a total for
commercial credits for New Zealand importers, wishing to leave this
to the Export Credits Advisory Council.
Nash asked for £10 million and on 7 July the Chairman of the Council
agreed to £2 million. Nash said that this was 'no use to him at
all'. He then cancelled his passage home. There were more meetings at
which he demanded £8 million (Savage cabled that at least £5
million was needed). A meeting on 11 July Inskip said that £2
million 'was the limit tonight; it will be the same tomorrow morning
or tomorrow afternoon or next week.' Indicated that he would
compromise at £5 million. Next day the Chairman of the Council,
Inskip, Simon, and Stanley decided to offer £4 million, which Nash
promptly accepted.

At
the same time Nash was engaged in long discussions, involving many
cables and telephone calls to Wellington, on the assurances which New
Zealand might give to the British government and manufacturers about
import controls and New Zealand industries. There
was much discussion about what an 'uneconomic' industry was. The
British ministers defended their manufacturers vigorously. Oliver
Stanley opposed 'monopolies' in New Zealand, protected by import
prohibitions, but he added 'that if the license is to be confined to
one "we want our people to have the chance to be that one".'
In reference to pressure from manufacturers, he said to Nash, 'we're
both politicians and have our difficulties'.

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184

..........referring
to a 'monopoly'. Eventually London agreed to Wellington's suggestion
that the paragraph should refer to industries which 'required some
measure of restriction of import in order to operate efficiently'. In
the eyes of the British negotiators, this gave a 'wider assurance'
than they had asked for. On 12 July, Oliver Stanley and Nash signed a
memorandum. Though much watered-down, it was still a humiliating
document, which was presently published. In part it read:

2.
United Kingdom Ministers recognise that in the circumstances that
existed in New Zealand last December, and still exist, some effective
measure for reducing total imports into New Zealand below their
recent abnormally high levels was, and is, inevitable, and they do
not raise objection in principle to the method which the New Zealand
Government have adopted though they are conscious of the difficulties
it has caused in individual cases. Mr. Nash has undertaken that the
New Zealand Government will examine and do their best to meet the
representations by United Kingdom industries with regard to such
cases. United Kingdom Ministers welcome this assurance. They
appreciate also the fact, which was confirmed by Mr. Nash, that the
New Zealand Government's intention is to administer the policy as
favourably as possible in relation to United Kingdom interests. They
informed Mr. Nash, however, that they were apprehensive as to the
permanent effects on the United Kingdom export trade of a policy
designed to meet a temporary difficulty in New Zealand.

Nash
acknowledged that the scale of import restrictions was abnormal. New
Zealand would aim at a relaxation to encourage expanding trade with
Britain,

4.
Mr. Nash assured United Kingdom Ministers that it was not the
intention of the New Zealand Government to employ the import
licensing policy in order to give protection to New Zealand industry
against imports of United Kingdom goods on a scale which prevented
full opportunity of reasonable competition. He explained that
difficulties arose in cases where the New Zealand Government had
already incurred obligations by taking action to encourage the
establishment of industries which, in the opinion of his Government,
required some measure of restriction of import in order to operate
efficiently. He
undertook to investigate the matter fully on his return to New
Zealand, and gave an assurance that, pending this investigation of
the position, such protection would not be extended to other
industries.

5.
He also agreed on behalf of the New Zealand Government that their
policy of licensing imports would not be used to foster uneconomic
industries, and that, in order to assist them in determining what
goods could be economically produced in New Zealand, they would
invite the views of the United Kingdom industries concerned and would
take such views into account in reaching a decision.

6.
In cases where it is proposed to grant a limited number of licences
to manufacture particular kinds of goods, the New Zealand Government
would give United Kingdom interests the opportunity to put forward,
should they so desire, proposals for undertaking such manufacture.

Nash's
troubles were not yet over. On 11 July Norman returned from

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185

Basle
and met Nash, who had now booked a passage on the Queen Mary on the
13th. Norman spoke to him as though to an erring schoolboy. Nash's
transcript of the opening of this conversation went as follows:

MR.
NORMAN at the outset said that two things were perfectly clear: (1)
We cannot finish this if Mr. Nash is leaving tomorrow (2) Unless you
have agreement with your friends in Whitehall--the Board of Trade and
Sir Thomas Inskip--there will be no arrangement. 'We must all stand
together'. He enquired whether Mr. Nash was going away?

MR.
NASH: Those are my present plans.

MR.
NORMAN: From the beginning I have felt you did not want to improve
your credit position.

MR.
NASH queried this.

MR.
NORMAN: 'You have been up and down talking figures that damage your
credit. If you had set out to destroy your position you could not
have done it better.' He referred further to the difficulties of
making arrangements. 'Nobody can know what they can do a week hence:
you have only to look at the map of Europe'.

MR.
NASH said they were agreed that the money to repay the 16 millions
should be met half-yearly; that arrangements should be made for the
Bank of England to draw from Reserve Bank of New Zealand's funds if
necessary. There should be no special charge on exports.

MR.
NORMAN: What if the money were not there or if the Reserve Bank
account were withdrawn from the Bank of England

MR.
NASH: We would give an undertaking that the funds would be there. He
was prepared to recommend legislation to set up an Overseas Debt
Redemption Fund.

MR.
NASH repeated that the proposed announcements that moneys were being
paid on due date by New Zealand were objectionable. 'It is like the
declaration of a bankrupt's dividend'.

MR.
NORMAN: I won't say you're bankrupt but you have no credit. Further
discussion whether the giving of priority on a new redemption loan
would infringe the security of existing loans.

MR.
NORMAN: We still want some charge on the 'funds arising from the sale
of primary products outside the Dominion'.

MR.
NASH: We are prepared to pay from our own Government funds.

MR.
NORMAN could not say this evening whether a phrase on those lines
would meet requirements.He
mentioned that Mr. Nash was seeing the Dominions Secretary at 9 p.m.
(9.30 p.m. was the hour), and repeated 'We all stand together'. 'You
settle with all before you settle with any.'

Instead
of a 'first charge' on New Zealand exports, Nash offered to give an
undertaking to repay from government funds. Norman replied that 'an
irrevocable undertaking to supply from a fund that may or may not
exist cannot be very reassuring.' He insisted that a New Zealand
government promise to repay must be backed by an order-in-council or
an act of parliament. An order-in-council was objectionable enough,
and the New Zealand Solicitor-General advised that it would amount to
no more than a solemn declaration. Nash protested that the prospectus
of a loan was in itself a binding contract. But the government had to
comply. On these terms

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186

............the
bank dropped its demand for monthly repayments and for a 'specific
charge'. Even so, the loan of £16 million had to be repaid in five
annual instalments. Some British newspapers thought the terms
impossibly onerous; indeed blackmailing.

There
followed what Nash called an 'annoying delay' by the bank. So far the
'establishment' had twisted Nash's arm, meaning to impel him towards
wiser, in other words more orthodox courses, more in Britain's
interests. Now Norman intervened decisively to help him, just as,
almost certainly unknown to Nash, Chamberlain had done. It would not
do to go too far in publicly punishing an erring Dominion, or
quasi-colony. It
was difficult to induce brokers and financial houses to assist with
the loan. Machtig wrote to Batterbee, 'It is a testimony to the depth
to which New Zealand's credit had fallen in the City that it took the
Governor of the Bank nearly a week before he could secure the
necessary support for floating the proposed loan, and even then, we
are told, he had to "ram it down the bankers' throats".'
What
Norman did was to force the six banks operating in New Zealand to
take up some £6 million. The Bank of England underwrote the rest.
His biographer, Sir Henry Clay, wrote: One territory incensed the
issuing bankers, which had always met its needs, by talking about
re-funding sinking funds and by pursuing a policy of domestic
inflation which made it very unlikely that it would be able to meet
its external debt service. When its Finance Minister arrived in
London with very large maturities to re-fund, he found his former
friends all disinclined to lend him anything. Norman sympathised with
the issuing bankers; but he could not let an Empire Government face
default. For a week he kept bankers and Ministers in conference,
putting the case of each to the other and extracting concessions from
both, until agreement to float the re-funding issue was--with a large
undisclosed subscription from the Bank--agreed. The Adviser who had
assisted him remarked as they left the last meeting, 'I do not know
how even you stand a strain like this last week's'. 'I could not have
done, ten years ago', the Governor replied.

Norman
also assisted by arranging that the underwriting commission and other
expenses would be below normal. The loan was floated at the very low
rate of 3½ per cent and only some £3.5 million was applied for in
cash or conversions. £12.5 million was left with the banks. The
Times was 'helpful' in encouraging a good atmosphere for the loan.

Nash
at last got away on theQueen
Mary's
next crossing on 2 August. In exceedingly difficult circumstances he
had done fairly well. He had got most of the money he wanted. Beneath
his courtesy he was exceedingly stubborn. Not as aggressive as
Fraser, he was very hard to throw off balance; he kept cool. He was a
good negotiator. Although there was a press campaign against New
Zealand's finances, personally he had a good Press. He was very
attentive in listening to the complaints of manufacturers. His praise
of his government's achievements impressed Labour listeners.

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.........
If Norman called during the crisis, it must have been on the 12th or
13th of July, at the time of the interview just quoted. Nash was then
booked on theQueen
Maryand
uncertain whether to leave, as he told Mrs Nash and Savage, while
Norman was urging him to stay on. It was after this that Norman
pressed the banks to assist New Zealand Though these events were, not
surprisingly, a little scrambled in his memory when Nash was an old
man, there is no reason to doubt that something of the sort happened.
Norman did help Nash very considerably--had he gone home without a
loan his political prestige would have suffered severely. What
impressed Nash most, however, was that Norman had called on him, a
borrower. Just
after he left England, Mr H. V. Hodson, the editor ofRound
Table,
a journal which tried to be objective about British Commonwealth
affairs, wrote to him:

I
find it difficult to comment on the arrangements that you succeeded
in making here. I imagine they will be regarded by many people in New
Zealand as more onerous than might have been expected, and that
ill-will towards a Labour Government on the part of the City of
London may be blamed a good deal, as it has been in the past.There
must inevitably be suspicion on. the part of investors of money
towards a reformist régime but it is my view that this motive has
been, in the last resort, much less important in placing obstacles in
the path of your obtaining the finance you want than the sheer lack
of investing power of Great Britain today. We have neither the
necessary margin on our balance of payments nor the necessary margin
between savings and investment at home. Indeed, I think we may be in
for a substantial measure of inflation on the latter score within a
short space of time--a development likely to be not unfavourable to
the economy of New Zealand. When there is really little or no money
to lend, the political excuses for not lending it always seem to be
decisive.

While
crossing the Pacific in the Mariposa, after crossing the USA, Nash
replied:

The
London negotiations were conducted in very mixed atmospheres. Some
splendid friends whom it is good to remember, others whom it is well
to forget.

Once
fears in the financial and investing world have been created it is
difficult

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188

to
remove them. Stressing of advisability or necessity only extends the
fear of the Trustee or ordinary investor--and the more publicity that
was given to the question--the more difficult to obtain rational
thought and reasoned procedure.

Whilst
recognizing the extent of the accommodation provided and without
commenting on terms or other conditions I regret personally that the
opportunity was not seized to be completely generous in every
way--with party politics--and class prejudices completely set aside.

Such
an opportunity to tie up the goodwill of New Zealand whatever its
form of Government may not occur again.

We
can manage but with many difficulties that could have been avoided
and replaced by memories of generous thought and treatment that would
never have been forgotten.

However
the United Kingdom has its difficulties and whatever New Zealand can
do in its small way to help the Old Country will be done--even though
the cost may be heavy.

One
of Nash's reactions to the events in England was that his dislike of
overseas borrowing was greatly reinforced. In a cable to Savage from
London he referred to 'the menace of overseas debt and redemptions'.
This had been an attitude very common in the Labour Party during the
depression, as among the earlier Liberals during the depression of
the eighteen-eighties. When export receipts fell, or import
expenditure rose too high, the interest on and redemption of overseas
loans was a heavy burden which left the government exposed to the
kind of pressures Nash had experienced..... Undoubtedly the events of
mid- 1939--and much more, those of 1941-5 --pushed the New Zealand
government towards independence, towards a lesser reliance on 'the
Old Country'. The British ministers had not proposed to tax the
Dominion, but they had certainly wanted to control its economic
development--in their own interests: an attitude not much different
from those of eighteenth-century mercantilists.
Some people must have thought that Nash was getting his deserts, for
profligate radical government, when he was being pushed around in
London, in the hard, real world. But was this fair? In the light of
later events one might see Chamberlain and Montagu Norman--the
'appeasers'--as living in an unreal world, trying to hold fast to
economic and political views which most governments repudiated.
(During World War II, the Americans suspected Norman of still being
in touch with Schacht. One of Norman's biographers called him a
'sleep-walker', for he persisted in trusting the German authorities
even into 1939.)

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189

On
his way back to New Zealand Nash paid another official call of much
greater long-term and symbolic significance than his time in London.
He visited Washington, where he discussed trade with Sumner
Welles..................

Nash
enjoyed a little revenge on the British, which must have given him
some quiet, ironical satisfaction. On 4 September the New Zealand
government declared itself at war with Germany. On 5 September Nash
came ashore from theMariposa.
On the same day the British government cabled that (according to
arrangements finalized early in 1939) it was prepared to buy New
Zealand's entire exportable surplus of meat. Next day they requested
the entire exports of dairy produce. His 1936-7 search for a bulk
sales agreement had been rewarded. And over the next few months
sterling reserves built up with gratifying speed.

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192

..............The
proposed nationalization of the Reserve Bank aroused strong party
political feeling. Fraser and Nash--and Savage--did not want to
divide public opinion any further in war-time by pressing an issue as
emotionally charged as the nationalization of trading banks. It could
be thought that, in seeing an overriding need for national unity,
they were as patriotic as the professed or super patriots like Lee
and Barnard, who wrote pamphlets such asI
Fight for New ZealandandThe
Speech of a New Zealander.

When
the question of nationalizing all the banks first came up in caucus,
at the September meeting, Fraser and Nash raised it. The credit
reformers, except on one occasion, pressed to nationalize the Bank of
New Zealand alone. This would not have been difficult, for it was a
New Zealand bank. Indeed, the government already controlled its
policies in a broad sense, both through the Reserve Bank and because
it appointed a majority of its directors. To nationalize the other
banks would be more difficult. Several had their main business in
Australia. All were directed from Australia or Britain. Most of their
shareholders did not live in New Zealand. A caucus committee reported
that it would be difficult to legislate banks out of existence, but
recommended that the Bank of New Zealand, once nationalized, 'might'
be given power to purchase the New Zealand assets of its rivals.

Lee
and the dissidents regarded themselves as a left wing fighting
orthodox, conservative ministers, but it is difficult to see the
dispute in this light. A socialist would have regarded bank
nationalization as part of a programme of state ownership of the
means of production and distribution --as well as of exchange. But
neither the government nor its critics had such a programme. The
dissidents' aim was not socialism but cheap credit. Lee believed that
a trading bank should be taken over to make credit available for
industry. In the eighteen-eighties the State Bank League had
similarly wished to get cheap credit for farmers. But why Lee thought
that to nationalize the Bank of New Zealand was the best way of
providing cheaper credit was and is not obvious. The nationalization
of one bank, though the largest, would not have threatened
capitalism, but to the credit reformers it was an emotional
symbol--one moreover, with which exsocialists could identify. Nash
himself had written his pamphlet attacking the bank in 1925.

In
October McMillan returned to the attack. He and W. T. Anderton moved
in caucus that the shareholders of the trading banks should be
compelled to sell their shares or New Zealand assets to the Reserve
Bank.

-192-

Pg
202

British
fleet would arrive. Although the British authorities already realized
that a fleet mightnotarrive,
the British Chiefs of Staff had sent a quite misleading paper
asserting that if Japan attacked a fleet would be sent whatever the
situation in Europe.When
Air Marshal Sir Arthur Longmore returned to Britain he told the
Chiefs of Staff that it had been embarrassing --the British
delegation did not want to encourage doubts about the fleet, yet did
not want to discourage New Zealand defence preparations by suggesting
that all was well. In the event they were less than frank.

The
British now said it might take up to ninety days for a fleet to
arrive and twenty more for supply convoys. Bernard Ashwin of Treasury
expressed doubts whether Singapore could hold out that long. He noted
that the Japanese had experience of coastal landings in China. There
might be a 'gap' between the time Singapore could hold out and the
fleet arrive. Longmore complained that Berendsen and Nash were firing
broadsides at the British. Nash was very pressing and sceptical about
how long the fleet would take if Germany and Italy were at war too.
Major-General P. J. Mackesy said it might be three months--but
fortresses could hold out much longer than expected. Nash asked,
'What do we do then to defend Australia and New Zealand when
Singapore is gone and the fleet that comes after is smashed up?'
Longmore said, 'I think the answer to that is to take to the Waitomo
Caves.' Nash retorted, 'The only place that we can see anything that
is glowing.'17

One
could not call Nash or Fraser or Savage New Zealand nationalists, as
Lee was. New Zealand stood between colony and nation; they were
leaders entirely appropriate at this stage. They thought much,
justifiably, and on the whole wisely, about imperial relations,
whether trade or defence or political. But events were pushing the
southern Dominion towards national independence. Neither an
Australian-born Prime Minister nor his Scottish deputy were likely to
kow-tow to the English. If Nash had nostalgic yearnings, his
experience in 1939 pushed him strongly towards antipodean and 'Kiwi'
rather than Anglo-Saxon attitudes.

When
declaring war, Savage said of Britain his famous words, 'Where she
goes we go, where she stands we stand'. He did not know for certain
that the British had gone, even if it seemed unlikely that they were
coming. The overwhelming majority of New Zealanders accepted his
sentiment, whether for the love of the motherland or hatred of
murderous dictators. By September the government had reversed its
attitudes and offered an expeditionary force. Plans were discussed by
Fraser with other Commonwealth ministers in London late in the year.
He was more abrupt than Nash--and often had to curb his sarcastic or
satirical tongue..................

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....................
Nash had becomelessprominent
as number two than as number three. He had been closer to Savage than
Fraser was. Perhaps in wartime all but the number one have to
submerge their personalities for the common good. But there was
another relevant factor. The government's problems had changed. The
great legislation was past; the problems of 1940 and 1941 were not
those of the legislator but of the politician, such as relations with
pressure groups, and with the Opposition party and with other
governments. These problems were, in a concentrated form, the sort of
problems at which Fraser excelled. As a creative legislator Nash was
his equal; in matters of political tactics no one in New Zealand was
his equal. He had the kind of flair, instant reflex, instinct almost,
which marks the born politician.

In
the absence of his chief, the loyal lieutenant did very well. He did
not make any terrible mistakes. He was already, in lesser degree,
used to coping with the innumerable diverse problems which crowd in
on a prime minister's attention. Fraser and he discussed, by cable,
the appointment of a new Chief of the General Staff. Both of them
had, as Nash cabled, 'bias towards New Zealander for post'. Edward
Puttick was appointed. The Governor-General, Sir Cyril Newall, was
reluctant to sign a government recommendation remitting a sentence of
flogging on four prisoners in Mt Eden gaol. He wanted the government
to announce legislation abolishing flogging. Nash was reluctant to
acquiesce in his not accepting advice, but was half inclined to agree
to his terms if the government did oppose flogging. Fraser cabled
back that cabinet should on no account accept the Governor-General's
refusal to act on ministerial advice. However, he too, hesitated.
Perhaps they should not press the point. With an election pending,
their decision might be misunderstood. On this occasion--probably the
last on which a New Zealand Governor-General did not act on
ministerial advice--the cabinet gave in. Rex Mason, the Attorney
General, announced that flogging would be abolished; the
Governor-General then signed.

One
problem Nash could not solve was the refusal of the medical
profession to accept the proposed medical service. In 1941 Nordmeyer
replaced H. T. Armstrong as Minister of Health and began to harry the
doctors. They were offered a 15s. capitation fee per patient, plus a
mileage allowance, but this was acceptable to few. In desperation
Nash and Nordmeyer took up the idea, several times suggested by the
profession, of a fee for each treatment a doctor gave to a patient.
They met BMA representatives in late August and Nash said 'we will
pretty well have to agree to anything to achieve cooperation'. The
doctors, however, refused the fee-for-service. The government went
ahead and introduced legislation introducing a 5s. fee for each
service. The doctors organized protest meetings and published
advertisements saying that the people's health was in danger.

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.........Nash's
main job in 1939-41 was to tune up the war economy. This meant that,
as in peacetime, as Minister of Finance he had a say in most
important decisions. New Zealand had not been prepared for war. There
had been a small measure of rearmament; the territorial army had been
enlarged; but the shortage of overseas funds had kept imports for
defence purposes to a minimum. There had been negligible planning
about the use of manpower before the war. Ironically, the
over-importing which produced the exchange crisis proved a godsend.
In particular, heavy earth-moving equipment brought in for Bob
Semple's public works proved invaluable for defence works. Similarly
the introduction of exchange controls and import licensing, not
notably skilful in 1938-9, proved useful practice for wartime
controls and planning.

It
had long been observed, especially by credit reformers, that there
was always plenty of money for wars. Once again, the question for
Nash was, where is the money coming from? In his budget speeches in
1940 and 1941, in a speech published as a pamphlet in 1940, Nash
replies to the Critics, in his speech to the Stabilization Conference
in 1940, Nash had turned his face sternly against inflationary credit
issues. The government's policy for financing the national effort 'on
the war front and the "home front",' he said in his 1940
financial statement, 'may be concisely stated as tax to the economic
limit for war purposes and borrow for essential productive works and
for any balance of war requirements'. In addressing the Stabilization
Conference he refurbished his sturdy old favourite phrase and told
them that the 'first call' on their resources and energies was now
the war.

Tax
to the limit: he meant it. It was at this time that he began to earn
a reputation as a rapacious taxer. In 1940 he introduced new gift and
death duties and a war tax, the national security tax, of 1s. in the
£1. The aggregate income, social security, and national security
taxes rose to a level that had not been known before. In 1915 a
single taxpayer earning £500

-209-

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226

......New
Zealand's importance as a food-producing country--and especially of
the desirability 'that a large proportion of the foodstuffs shipped
to Europe and elsewhere for relief purposes should be milk products,
because these are the most nutritive, and can be most easily
assimilated by peoples whose stomachs have been weakened by long
periods of deprivation'. He said that much trade after the war might
be commodity exchange--but he had thought of the idea that the rich
states might buy food from New Zealand to give to the poor nations.

One
of Nash's constant themes in 1942-3 was the need for the creation of
a United Nations Council, a peace council to parallel the great War
Councils. He wanted an immediate meeting of the United Nations (that
is, at that time, of the Allies against Germany, Italy, and Japan).
Roosevelt had spoken in 1941 of the 'four freedoms'. He and Churchill
had issued the Atlantic Charter later that year. What
was now needed was a meeting of the 'forty-three free nations' to
define their aims more precisely and fully, and to translate those
aims into terms of specific domestic and international policies.
Moreover, initial decisions about the future organization of the
world must be made in public and not in secret conclave. He
repeatedly urged in speeches that a World Reconstruction and
Developmental Council should be set up at once.

Many
people were very moved by his talk. In November 1942 Bill Parry, a
simple soul, wrote from Wellington, 'Your advocacy Walter, of the
international Council to give an interpretation to the Atlantic
Charter is an inspiration....' He added that Tim Armstrong, who had
just died, had been 'enthused' too. 'Tim said Walter is not going to
have our cause fooled this time, he is going to insist upon the world
being given to understand what it really means'.63

But
what did the Atlantic Charter mean? The right to national
selfdetermination, the right of all people to improved labour
standards, economic advancement, and social security, for instance,
looked differently to British or Americans. Nash pressed his views on
this question on Roosevelt, both at private meetings and at the
Pacific War Council.

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...............Nash
was home for the party conference and for the budget. In 1942 it had
been presented by Fraser and enormously increased taxes. Though Nash
was able to present this year's budget, economic matters were no
longer in his control. Fraser had announced a comprehensive
stabilization policy, to control prices, wages, and costs, in
December 1942. Stabilization
and war finance were the dominant economic themes of the time, and
Nash summarized these in his financial statement. So far the war had
cost £229 millions--which made his £17 million conversion of 1939
seem a tiny problem.

The
budget provided extensive increases in pensions for disabled ex servicemen, for war and other widows, and in child allowances.
Payments to hospitals were also increased. The cost of social
security increased to £17 million.4

Nash
stayed on in New Zealand for the 1943 general election. He spoke to
nineteen meetings in three weeks. The credit reformers tried to make
a comeback. John A. Lee's breakaway party, Democratic Soldier Labour,
advocated a 'new credit system', especially for industrial
development. He and Barnard ridiculed Fraser and Nash as financial
conservatives.

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235

Nash's
main job in London was to discuss the Dominion's manpower problems.
New Zealand had over-extended itself. It was trying to maintain an
army division in the Middle East, and then Italy, and another in the
Pacific, plus large numbers of men in the navy and air force. By
September 1942 there were 153,600 men and 3,400 women in the armed
forces. The man were nearly a third of the male labour force.

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Although
New Zealand had an obvious interest in the regulated expansion of
world trade, international monetary stability, and above all in
cooperative measures to cope with balance of payments deficits, the
Bretton Woods meeting also held a potential threat. Fraser wrote to
Nash in January 1944 that 'there exists a grave danger for New
Zealand' in the preliminary talks between London and Washington on
post-war policy. He feared that Great Britain might accept the idea
of export subsidies, which the USA might want to keep to help its
farmers, while being 'inclined to surrender on questions of
quantitative restriction of imports, bulk purchase, state trading and
imperial preference'. He thought 'it would be a poor reward for our
country's immense war effort to be threatened in any way with
industrial disaster at the hands of our friends.'

The
threat was real, for import licensing and exchange controls, such as
New Zealand's, were two of the measures restrictive of trade which
the Americans, led by Cordell Hull, and the British wished to
eliminate.

The
Americans and British had to make concessions to the Russians during
the preliminary discussions in London. Nash cabled Fraser from there
in March that the trend of thought favoured either private trading or
state trading with government monopolies. It was not clear whether
there would be room for New Zealand's mixed trading system.

Before
the conference began the Australian and New Zealand governments
conferred about their policies during discussions on international
economic collaboration. They agreed that the main over-all aim was
full employment. This objective was a legacy of the depression which
was, at least in New Zealand, to dominate Labour thought for many
years. The two countries wanted to induce others to pursue domestic
policies aimed at the same target. They wanted international economic
cooperation after the war. But--Fraser cabled to Nash--they wanted
the right to retain government control of imports and exports where
necessary in the national interests.

The
Bretton Woods conference of forty-four states met to discuss the
draft Agreement drawn up during the preliminary discussions. Nash led
the New Zealand delegates. He was accompanied by B. C. Ashwin,
Secretary to the Treasury, E. C. Fussell of the Reserve Bank, Bruce
Turner, and A. G. B. Fisher. The latter had been brought over from
Chatham House in London as an 'expert', to the FAO conference. Cox
and Campbell had him attached to the New Zealand delegation to the
UNRRA conference. When Nash was in London he found that Fisher and
Campbell did an excellent job during the preliminary IMF discussions.
He now had Fisher appointed a temporary Counsellor to the New Zealand
legation. Fisher's understanding of international finance was
outstanding. Turner was to become the senior UN financial official.
With their economists' knowledge of trade and finance and Nash's
politician's knowledge and experience, it was a good team.

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Apart
from the main Commissions, the one on the IMF chaired by Harry Dexter
White, Assistant to the Secretary of the Treasury, and the one on the
International Bank chaired by Lord Keynes, there were three
committees. Nash was elected Chairman of the Committee on Nominations
(to the various commissions and committees). During the conference he
was also elected a member of a committee which fixed 'quota'
allocations.

Each
member of the Fund was allotted a 'quota', which determined its
subscription and drawing rights. Both in Committee and in full
Commission Nash pressed for a higher quota for New Zealand. He did
not get his way, but thought nevertheless, since the establishment of
the Fund was of such broad international importance, that New Zealand
should join. The Russian request for a much higher quota was
approved, and Nash was impressed with what he took to be the USSR's
whole-hearted support for the Fund. Nash spoke on various other
matters. For instance, he strongly but unsuccessfully protested
against the requirement that members of the Fund pay a small service
charge on borrowings. He thought this would discourage the use of the
Fund. But his main concern was that the Agreement provided that
members would not impose restrictions on the making of payments and
transfers for current international transactions except during a
transition period after joining, or temporarily against currencies
which the IMF had declared 'scarce'.

He
cabled the Acting Prime Minister and Minister of External Affairs (
Dan Sullivan, while Fraser was abroad too, from April to July).

While
the intention of this provision is not to interfere with a member's
system of exchange control so long as the member is not blocking
payments which it owes (i.e. for current imports) I felt that it was
unsatisfactory in its present form because it is liable to lead to
misunderstanding on the part of the public. I endeavoured to have
embodied in the clause a specific statement that reference to
restrictions was in no way directed at the control of exchange in its
entirety to enable commitments for approved imports and other
approved transactions to be met promptly and fully. But the most I
could get was an assurance from the Chairmen of the Commission
(concurred in by members of the Commission) that there was nothing in
the clause as it stands which in any way conflicts with exchange
control. Under the present draft we can maintain our import licensing
and exchange control procedure subject only to our ensuring that all
exchange required for current transactions is made available.

According
to the notes he made at this time, he had asked the chairman, Harry
D. White, whether exchange controls were permissible, provided that
exchange was used to pay for all current transactions. White replied
that this was his understanding, and he asked the meeting if there
was any dissent. There was none.

Within
New Zealand there was much suspicion and hostility to the IMF. Nash
was warned not in any way to intimate publicly that if he signed the
final Act he was committed to recommending it to his government; nor
was

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New
Zealand committed to adopting it. Sullivan and Fraser both stated
that there would be no commitments until the government and
parliament had considered the matter.

Nash
felt strongly that New Zealand should join the Fund. Before he left
he wrote to Harry D. White, 'it can easily be the greatest step in
World History with possibilities of removing one of the major causes
of war--if not the major cause.' He was not blind to the possible
menace to his beloved import and exchange controls. There would be
some restrictions on New Zealand. For instance, a member of the IMF
could not permit exchange rates to fluctuate greatly without
permission. But any international system of payments would involve
submitting to rules. As usual, Nash placed international benefits to
the fore. But, like A. G. B. Fisher, he was also quite aware of the
great help the Fund might offer in coping with balance of payments
problems like that in 1939.

Nash
had by now been succeeded as Minister to Washington by Carl
Berendsen. His colleagues wanted him back in time for the 1944
budget. This gave him a very tight schedule. However, Admiral Ernest
J. King arranged for a plane to fly Mrs Nash and himself back home.
They left New York by plane on 20 July and San Francisco on 22 July.
They landed at Honolulu, Canton Island and Fiji, where Nash received
'budget material' flown up from New Zealand. The flight across the
Pacific to Auckland took 33 hours 3 minutes. By 26 July he was in
Wellington for the opening of parliament.

While
Fraser and Nash were away the credit-men had been playing up in
caucus. On Langstone's motion a caucus committee had considered
nationalizing the Bank of New Zealand. It resolved unanimously that
this should be done though so frightened was caucus of Fraser that it
approved the committee's views only as a recommendation to the Prime
Minister.

Although
Nash had opposed this step in war-time and had said that the banks
were doing a good job, this time both he and the Prime Minister had
to submit to the majority. They remained entirely--and
justifiably-sceptical. Since the government already appointed a
majority of the bank's directors and controlled its actions in
various ways through the Reserve Bank, and since the other banks were
to be left in private ownership, it was not clear what benefits would
flow to the public from nationalization.

However,
Fraser and Nash could console themselves with the thought that it
might be possible to unite the party over an issue which had long
divided it. At the 1943 party conference Nash had strongly resisted
the demand for nationalization and had been supported by the
majority. Now, at the 1944 conference, he seconded H. E. Combs's
motion to create a state trading bank. His arguments were luke-warm
but he said that, although it would not bring all the advantages
people hoped for, it was in the best interests of the country that
the proposal should receive unanimous support

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..............
Nevertheless, the New Zealand government, led by an Englishman and a
Scot, was markedly more Commonwealth-minded than the other
Commonwealth governments. There was certainly no invariable and
necessary connection between British birth and British imperial
patriotism.And
in Nash's case it might have been expected that his unhappy
experiences in 1939 would have outweighed love of country. But his
reaction was different. He always tried to look charitably upon the
actions of those who opposed him. The behaviour of the upper class
rulers of 1939 did not altogether dismay him; he bore no resentment;
the sins of Oliver Stanley were not visited on Churchill or Attlee.
It should be added that New Zealand was moving in the same direction
as the others, but more slowly. In 1947 New Zealand adopted the
Statute of Westminster which made it in all legal respects a fully
independent state. In 1946 the government began discreetly to drop
using the expression 'Dominion of New Zealand', the word Dominion
being scarcely appropriate to the new post-war Commonwealth.

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.............
The New Zealand amendment provided that states which maintained 'an
effective system of complete control' of foreign trade by methods
other than a complete state monopoly, should receive the recognition
accorded to eastern Europe. Such states were to use all their
overseas receipts for debt repayments and imports...........

Only
eighteen states were represented at Geneva. On this and other related
amendments Nash received support from the Chileans and Czechs --Jan
Masaryk being not yet defenestrated in Prague. Australia, New
Zealand, Cuba, and Chile pressed hard for more protection for the
underdeveloped countries. A Cuban delegate later said that his
country was 'one of the other bad boys' who dared to raise their
voice against their elder brothers...........

Leicester
Webb, a journalist and political scientist who had become Director of
Stabilization, replaced Nash on the delegation. The
Americans now opened up with some heavy traditional artillery. They
moved an amendment directly attacking the New Zealand amendment. One
American delegate said that the New Zealand amendment would destroy
the structure of the Charter and--horror of free trade horrors--make
it possible to protect all domestic industries.

Clair
Wilcox said that the New Zealand amendment was 'a sanctification of
autarchy, an incitement to economic warfare.' Leicester Webb said in
conference that Wilcox had 'descended upon us in wrath rather like an
angel of the Lord'.72

Webb
spoke more briefly and boldly than Nash, but without the conciliatory
gestures desirable in view of other New Zealand objectives, not
immediately at stake. Nash, however, was clear enough when speaking
to Webb or Johnsen. One
American amendment implied more or less free entry for investors.Nash
cabled from Wellington to the delegation:

There
can be no question of admitting equality of investment opportunity
and certainly no question of concessions to foreign capital which
will be permitted to exploit New Zealand resources only in
circumstances and under conditions conforming faithfully to our
economic and social policies.

The
whole of the proposed American amendment is a threat to the economic
and political sovereignty of countries which might be penetrated by
the capital of creditor nations. Moreover read in the light of
Charter's insistence on M.F.N. [Most Favoured Nation: that is, that
any tariff advantage given to one state must be given to all members]
... and proscription of quantitative regulation it has the appearance
of serving the expansionist aims of economic imperialisms. New
Zealand could not in any circumstances subscribe to an article of
such substance.

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................It
was fashionable in leftist and credit reform circles after the war to
talk of the government as extreme right wing. But it had made some
moves, not all willingly, to refurbish its image in radical or credit
reform eyes. The
1946 election manifesto promised the nationalization of the coal
mines-which some owners in any case wanted. In 1945 the child
allowance had been increased to 10s. a week. At that time this was a
significant addition to the income of families. Another such measure
was the nationalization of the Bank of New Zealand which pleased
socialists and credit reformers...............

Nash's
own publicity, such as a leaflet,The
Hutt Electorate,
placed the main emphasis on these fears. The
voters were told that the choice was between 'the jungle economics of
unrestricted competition advocated by the Nationalists with its
inevitable accompaniment of booms, slumps, insecurity and poverty'
and prosperity with Labour. 'Only under Labour's economic and social
philosophy is there any security against future unemployment.'

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...............
New Zealand's principal trade policy was a form of aid to Britain.
For many years New Zealand sold its dairy produce to Britain at well
below ruling world prices. This was the case even though Britain was
paying New Zealand 'lump sums' to compensate for the fact that the
terms of trade had moved against New Zealand, because she had
successfully held local inflation firmly in check.24

While
he was in London in 1946 Nash renegotiated the bulk sales agreement
with Great Britain. New Zealand continued voluntarily to sell her
produce at below world rates. In 1947, for instance, the British were
paying 242s. per cwt. f.o.b. for Danish butter and only 175s. for New
Zealand (before the war the advantage of Danish butter had been only
15s. or 16s.). It could reasonably be argued that the world afforded
no comparable market for New Zealand dairy produce--but New Zealand
did not try to develop other markets. The agreement with Britain
allowed for 2½ per cent of New Zealand production to go to other
markets, but this provision was not used. Australian butter, by
contrast, was being sent to Asian markets.

During
and after the war, as a result of import shortages, New Zealand built
up massive reserves of sterling. The banks' overseas assets increased
from £7 million in early 1939 to £114 million in February 1947.
This was the highest level in New Zealand history. Nash had learnt
one thing very clearly in 1939--he never wished to find himself at
the mercy of the British moneylenders again. Much of the 'lump sum
payments', and other overseas assets were, as has been noted, used to
redeem London debts. The overseas debt was reduced during the war by
£45 million. Nash could reasonably feel that New Zealand's economic
strength had never been greater--and this at the end of a major war.
When in 1948 Nash revalued the New Zealand £ (which had been
devalued in 1933 to NZ £125 = sterling £100) to parity with
sterling, he explained this to the public in terms of help for
Britain. Labour had never liked the devaluation, intended to help
farmers with higher export receipts. It seems likely that Nash and
his colleagues had an emotional commitment to parity--a deep feeling,
as B. C. Ashwin said, that a 'pound is a pound is a pound'.

Nash's
principal advisers opposed revaluation. Ashwin wrote that New Zealand
would lose £20 million annually in export earnings and also lose the
protection afforded to New Zealand industry by the existing exchange
rate. The Department of Industries and Commerce and E. C. Fussell of
the Reserve Bank were also opposed.

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After
the war Britain suffered from a severe US dollar shortage. Even when
Britain achieved an overall balance of payments. there was a dollar
shortage. The sterling countries pooled their dollars, but still
there were not enough.
In 1947 Attlee asked Fraser if New Zealand could help in various
ways. These included not importing more than current export
earnings-thus keeping up the sterling balances; reducing petrol
consumption; not ordering supplies from dollar sources even if they
were available earlier than those from the sterling area; and, as
before, restricting dollar expenditure in general.New
Zealand agreed.

Another
government policy was to continue food rationing in New Zealand so as
to maximize exports to Britain. All these policies meant the
continuation of controls and shortages. The public was growing weary
of them--and of stabilization. These had been accepted in wartime;
but voluntary peacetime restrictions were another matter.
E. C. Fussell wrote to Nash in 1948 that importers believed that
import limitation was 'more to suit the New Zealand Government's
wishes than to help 'Britain'. Such attitudes were very common. Nash
was winning support abroad but not at home. In July 1949, after he
had attended a meeting of Commonwealth Finance Ministers, at which
Britain's dollar crisis (which soon led to the devaluation of
sterling) was discussed, Stafford Cripps wrote thanking Nash for 'all
your helpfulness during our meetings and for that ready friendship
which you always radiate'.

Resentment
against restrictions and controls and shortages was grist for the
National Party's propaganda mill. It was easy to say that this was
state control, socialism. Nash's and the government's liking for
central control made the accusation credible. The resentment was a
major determinant of the 1949 election.

Another
respect in which the outside world dominated the situation in

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the
election. The Press, as right-wing and capitalist as any in a
Communist's dream, equated Labour with Communist. When Ben Roberts,
the former Labour Minister of Agriculture, wrote to Nash about the
election results. Nash began to write a reply. 'The Communist bogey
proved terrifying to thousands, yet it was (in the light of
circumstances in New Zealand [where only a tiny minority voted
Communist]) so childish that I could not persuade myself that it
would terrify grown up men & women'--he stopped at that point,
and did not complete the letter, but wrote another four months later.

Possibly
Labour's defeat was not entirely due to National aggression. Some of
the Labour pamphlets stressed the danger of a depression--which was
not very real to most people during the great Korean war wool boom.
Labour voters stayed home in droves. There was a very low turn-out.
National won another four seats, tightening its grip. Nash was
indomitable: alone among Labour MPs he gained an increased majority.
He was one of the few remaining Labour leaders who was still a
national figure, not to be brushed aside by abuse, however
repetitive.

In
May 1951 a British newspaper had reported that New Zealand was in the
grip of a Communist-inspired reign of terror. Its season of hysteria
was not yet over. After the election the government introduced two
repressive pieces of legislation. One, to deal with spying, was the
Official Secrets Act, which passed without debate except that Nash
asked for an assurance that anyone accused could have a jury trial.
The other legislation was the Police Offences Amendment Bill, which
dealt with sedition and subversion.
This time the government had gone too far. There was very widespread
protest in the Press, from churchmen and others. The
sight of a government which spoke so much about the rule of law and
of extending individual freedom--as Holland did during the 1951
election--curtailing individual liberties was hard to stomach. Some
of the most illiberal features of the Bill were dropped, but as
passed it was bad enough. Like the emergency regulations, the new
legislation placed a heavy burden of proof on the accused. In
addition summary trial without a jury was introduced.

The
government alleged that the strike had been secretly fomented by
Communists. The aim, it appeared, was to limit New Zealand's war
effort, an assertion for which the evidence appeared to be some
anonymous waterside workers' strike pamphlets. The election, the
ministers said, had given them a mandate to deal with the Communists.
In introducing the Bill the Attorney-General, T. C. Webb, stressed
the need to guard the right of the individual to 'legitimate' freedom
of speech. Nash attacked strongly. He recalled his conviction in
1921, and described it in detail. This involved him running a
gauntlet of National interjections. Holland asked if it were wise to
bring the subject up. Nash said the same thing could happen under
this legislation. It involved a censorship of literature, of opinion.
He quoted the journalRound
Tablethat
democracy must fight anti-democratic

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Labour
came out in the 1954 election with a fist-full of promises. The child
allowance would be raised to 15s. a week. The government would make
available 3 per cent loans for housing.
Effective steps were promised to make the state the sole authority
for the issue of credit and currency. This was an attempt to keep
creditites in the Labour fold, for the Social Credit Political League
was now putting up its own candidates. In July Nash had forced the
pace by announcing that if elected, Labour would introduce PAYE
income taxation. The government then said that PAYE was bound to
come.Labour
announced during the election that the first £100 of taxation due in
1956 on income earned in the previous year would be cancelled (so
that no one would be paying two years' tax at once).

Labour
tried to make it a 'cost-of-living' election. Nash always stressed
that whereas National had promised in 1949 to 'make the £ go
further', it now cost 28s. to buy what a £ would buy in 1949. But,
at least to start with, the contest between the main parties aroused
little interest. Both Nash and Holland commented on this. By
contrast, Social Credit meetings had a revivalist atmosphere.

The
lack of fervour reflected the fact that Labour and National had
politically drawn closer together so that a failure to tell one from
the other was excusable. There were differences between them over
policy and in the kinds of voters who supported them. But there was
nothing comparable to the ideological gap between the parties in the
nineteen-twenties or even the nineteen-thirties. This was obvious to
almost everyone except, it seemed, the politicians. They continued to
assert that Labour would oppress private enterprise or that National
would oppress the unions.

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.............They
did not look likely to set anything on fire. Though Nash and
Nordmeyer had once been thought very left wing, none of them had that
reputation now. They had lost the wild money-men of 1935, so that the
ex-credit reformers and ex-socialists in their ranks looked pallid in
comparison with their predecessors. They did notintendto
set anything alight--they had no great schemes like those of 1935.
Labour had become an alternative administration, differing from
National in support and in emphasis. In the cabinet photographs they
looked arespectablelot.
The historian J. C. Beaglehole remarked that Nash, 'at the age of 76,
looked the only young man among them. The impression of eternal
youth--or rather eternal splendid maturity--was illusory....'

The
responsibilities, as opposed to the joys of power, descended upon
Nash with unwelcome speed. Reality asserted itself over euphoria in
the nightmare guise that Nash knew so well: another balance of
payments crisis.

There
had been balance of payments problems in each election year since
1946. That meant that the government had permitted an importing spree
in election years--or, in other words, that the public demanded more
goodies than exports would pay for while politicians were unwilling
to act the stem guardian of the public purse just before elections.
1957 was no exception. A day or two after the election, the economist
J. B. Condliffe, an old friend, who was acting as economic consultant
to the Reserve Bank, came to Nash with a sorry tale. The Bank had
been recommending credit restrictions since August. While the
Governor of the Bank, E. C. Fussell, was ill and his deputy, Gilbert
Wilson, not very active, Condliffe and the economic staff discovered
in early October that the worst balance of payments crisis since 1938
was threatening. Condliffe
was forbidden to tell Nash. The Minister of Finance, Jack Watts, was
told of the situation, by Wilson, it seems, in October. Fussell wrote
to him on 6 November, that urgent action was needed. The government
declined to act so near to and during an election campaign.

Only
now, after the election but before Labour took office on 12 December,
did Condliffe publicly refer to the crisis in a talk to Rotary. The
threatening situation had not, however, gone quite unnoticed. In mid-

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November
F. P. Walsh, President of the Federation of Labour, accused the Prime
Minister of studiously avoiding any reference to the country's
economic crisis, the over-spending of overseas funds. Holyoake
replied that ruin was not just round the comer but that the national
finances would require careful handling. The Press commented on the
very low overseas reserves, when figures were published later in the
month. But at least one newspaper, and also a cabinet minister, Tom
Shand, used the signs of a crisis as a stick to beat Labour with.
Shand said that there was a clear warning against expensive election
promises. TheEvening
Postwarned
that 'Labour's reckless bid for office' should not be accepted at the
expense of 'financial stability'.Labour
said very little because an admission of crisis would make its
promises look hollow.

The
episode was eloquent testimony to the ostrich-like propensities of a
prosperous democracy in an election year. The government could more
or less conceal, the Opposition and public ignore, approaching
unpleasant economic sand-storms. Meanwhile the situation
deteriorated.

On
the day Labour took office, E. L. Greensmith sent a Treasury report
to Arnold Nordmeyer.Export
prices had fallen sharply while import payments were running at some
£4 million a month above the 1956 level. To ministers who had been
so very promising his advice was bitterly unpalatable. To restore
equilibrium, private imports must be reduced by £30 million. (The
estimated total for 1957, before reduction, was £260 million.) This
was a task painful, and difficult, though not impossible, without
unemployment resulting from shortages of imported raw materials for
industries. As a consequence, it would be essential to reduce
purchasing power to the same extent: extra taxation and a reduction
in government expenditure were essential.

How
could the government fulfil its promises while decreasing expenditure
and increasing taxes? At a meeting of the Cabinet Committee on
Economic Policy on 20 December, chaired by Nordmeyer and attended by
Skinner, Holloway, and Boord, as well as Greensmith, Fussell, Sutch,
and others, the question was asked in Nash's absence. Nordmeyer said
that New Zealand must live within its income so that overseas
borrowing should not be thought of at present. The Committee agreed
that comprehensive import controls would be the most effective way of
dealing with the problem. ( Nash must have been present in spirit,
with the shades of 1938-9, at this point):

Subsidiary
matters were discussed as follows:

(a)
it was obvious that import control of itself would not restrain
excessive internal demand and that a simultaneous and strongly
disinflationary policy was required to reduce the level of demands
for imports from the prospected £260 million level to the suggested
level of up to £220 million [but hopefully only £200 million].

Many
relevant problems were discussed: what to do about imports 'on the

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.............was
both persistent and fearless. Although he was deeply interested in
foreign policy, and much of our talk was occupied by a survey of the
world situation, the main items for serious discussion were naturally
economic....

On
23 January I attended a meeting of the New Zealand Cabinet which
lasted nearly two hours. Apart from the immediate economic
difficulties, on which I assured them that British exporters would
understand the need for temporary import controls, Ministers seemed
chiefly interested in the questions of defence. In particular, they
expressed anxiety about developments in Indonesia and the future of
Malaya. Fortunately for me the Prime Minister conducted the whole
affair off his own bat and filled up the greater part of the time
with his own exposition. In the evening I had another private
conversation with him which lasted until the early hours of the
morning. All this was both useful and informative, if somewhat
repetitive. Nash was fond of talking, and when he found another Prime
Minister ready to listen to the arguments which he thought it right
to expound, he enjoyed to the full 'the rare felicity of uniting, in
the same pursuit, his duty and his inclination'.

Gladstone
and Marx were alike wide of the mark. Macmillan would have done
better had he thought of two friends of his grandfather, Charles
Kingsley and F. D. Maurice.

Nash
told Mallaby that he found it easier to deal with a Conservative than
with a Labour government in Britain,
he
was forgetting Oliver Stanley.

Among
other subjects Nash brought up the question of revising Ottawa. They
agreed to seek some agreement as soon as possible, and before a
Commonwealth economic conference which was to meet in Montreal in
September.Nash
also raised one of New Zealand's recurrent problems, dairy marketing.
Prices had fallen drastically, largely because a number of countries
were 'dumping' subsidized butter. Macmillan was sympathetic and
himself suggested that New Zealand should invoke the new British
antidumping laws.

A
strong team of officials, led by J. P. D. Johnson, now of the New
Zealand Board of Trade, who had been at Geneva and Havana with Nash,
set off for London in April to discuss revising Ottawa. Jerry
Skinner, the deputy Prime Minister, went to London to discuss the
butter problem. Both
he and the officials ran into customary difficult negotiations. The
British declined to impose countervailing or anti-dumping duties, but
threatened to do so if offending countries did not voluntarily limit
supplies.

The
delegation of officials found that the British were agreeable to
reduced tariff preferences, but demanded a tough concession in
return, that the New Zealand government should state, in the revised
trade agreement, that it would not apply quantitative restrictions to
protect local industry against British trade. New Zealand already had
made such an undertaking, in general, under GATT which however,
permitted quantitative restrictions for balance of payments purposes,
and these could be manipulated so as to give some protection to local
industry. The
British also wanted New Zealand to agree that import
restrictions..........

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..............In
February 1959 Nash visited one more Asian country, Japan, where he
met the emperor and held trade and political talks with ministers and
businessmen. It was thought by many people that Nash's journeys were
not strictly necessary, and
amounted to not much more than receptions and tourism. But there was
much more to it. Nash was a very strong and effective spokesman for
his government's--which were substantially his own--policies. Indeed
it may be doubted whether New Zealand has had a more outspoken
representative in international affairs.

In
1959 there was a crisis in Laos which could possibly have led to a
major war, like the later war in Vietnam, or even to a great power
confrontation. In late 1958 and early 1959 there were accusations
from the Royal Laotian Government of North Vietnamese intrusions, and
counter claims of American military bases in Laos, contrary to the
Geneva agreements. There was frontier fighting between government
forces and the insurgent Pathet Lao. In September 1959 the government
asked the UN for military aid to stop North Vietnamese aggression.

Laos
had been designated, under the protection of SEATO, as a 'protocol'
state, so there was immediate talk of intervention, which Nash
strongly deprecated. In statements in early September he tried to
cool such talk in New Zealand by saying that the situation in Laos
was unclear. In particular, it was not at all certain that there was
outside aggression rather than Laotian rebellion. It was, however,
appropriate for its government to seek UN assistance. The situation
was a dangerous one which might involve New Zealand.

In
October Nash attended a meeting of the ANZUS Council in Washington,
where he was extremely outspoken against American views. He asked how
long the Laotian government would have lasted without American aid,
and questioned whether it was right to interfere in local politics.
One of the Americans, J. Graham Parsons, an assistant Secretary of
State, said that Laos naturally looked to the USA for aid, since the
USA paid much of its budget. Nash asked if this were a breach of the
Geneva agreement, and the American said the USA was not a signatory.

There
was a warmer exchange with the Secretary of State, Christian Herter.
Nash said that the USA was trying to maintain the type of government
the USA wanted, not what the Laotians wanted.

Mr
Herter: 'No! We have not selected those who run for office, who form
the government.'

Mr
[Robert] Murphy [an Under Secretary of State]: 'Mr Prime Minister,
you are suggesting that we are trying to impose a government on the
Laotians.'

Mr
Nash: 'No, trying to maintain an existing government.'

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...........In
early May Nash returned from Europe, where he had visited Italy and
been received by the Pope, to London for his third Commonwealth
conference--the others having been in 1937 and 1946. This time there
was Macmillan, Nehru, Diefenbaker, Menzies, Tunku Abdul Rahman,
Nkrumah, Sir Roy Welensky, Eric Louw representing South Africa,
Mohammad Ayub Khan from Pakistan. There was much dining and
royalizing as well as pontificating. Nash's diary (in his own
handwriting) records on 3 May a luncheon at 10 Downing Street, dinner
at Windsor Castle (evening dress and decorations); on 4 May a dinner
at No. 10 and a reception at Buckingham Palace; on 5 May an audience
with the Queen.

At
the conference, while feeling not at all inferior, he was
overshadowed by Nehru and Macmillan, who did much of the talking on
world affairs and peace. Nehru had recently met Chou En-lai as well
as Russian leaders. Still, Nash told them of his talks with Khrushchev. He was convinced from his talk with the Russian leader
that he did not want war, but he would be willing to take risks, for
instance over West Berlin.30While
they were discussing the summit conference, to meet in Paris in
mid-May, an American U-2 spy plane was shot down over Russia and its
pilot taken. The summit looked less hopeful now.

Other
dark shadows were on the horizon. Nash spoke of New Zealand's great
anxieties if Great Britain drew closer to the EEC. Subsidized EEC
agricultural exports flooding the British market posed a great
threat. (On this trip he visited the six capitals of the EEC
countries and discussed their emerging common agricultural policy.)

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When
he(Sutch) was a member of the New Zealand delegation to the UN in the
late nineteen-forties there were FBI reports that he had contacts
with Communists. After he became Prime Minister, Nash was informed by
the Security Service that the National government had blocked Sutch's
promotion to the head of the Department of Industries and Commerce
because the Americans said that they would regard New Zealand's
security as suspect.11(The
United States communicated secret information to its ANZUS and SEATO
ally.) Nash, however, appointed Sutch to be permanent head of the
department. He did not discuss with the minister, Holloway, the
objections of the Security Service, nor raise the matter at cabinet. Nash
knew Sutch very well, and had long experience of his ability,
intelligence, and deviousness. It was a courageous decision. Whether
it was wise may never be known.

In
the anti-Communist atmosphere of Chamberlain's Great Britain or the
United States during the 'cold war' any pink radical might seem a red
threat. Many people--in New Zealand too--were secretly condemned
often without their knowledge, on slender or suspect evidence,
perhaps mere tittle-tattle collected by anonymous agents.On
the other hand, in Sutch's case, cool and uninvolved enquirers may
wonder whether there was not some fire below so much smoke. Nash was
quite aware of both these points of view and decided to trust his old
adviser. Leading National Party MPs did not conceal that they
regarded Sutch as a Communist.

One
other example of Nash overruling the security service may be given. A
European who had in his youth been associated with Marxists wished to
become a naturalized New Zealander. He had lived in New Zealand for
many years and had a New Zealand wife and children. The security
police would not give him a clearance because, they said, he had not
accepted New Zealand ideals. Nash minuted in 1960 that he should be
allowed to naturalize. The file lay on his desk without action,
however, until the election. A backbench Labour MP, Mr R. J. Tizard,
took the file to the Minister of Internal Affairs, W. T. Anderton,
who was the only Minister in Wellington during much of the election
period, because he was not standing, and he signed the necessary
approval.

Dr
Sutch played a major part in New Zealand politics during the Nash
government. His role was not that of a socialist but of a New Zealand
nationalist--one of the most conspicuous, indeed, up to that time.
His field was that of economic nationalism.

In
the Labour government's policy from 1958 onwards, import licensing,
the search for new markets, and industrialization went hand in hand.
New industries were to provide import-substitutes. But much more
important in the long run, they were to help New Zealand to outgrow
its colonial economy.

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...........Nash
introduced the Government Service Equal Pay Bill at the end of the
1960 session. He recalled how fifty years ago (in Modem Tailors) he
had found women doing for £2 what men received £4 10s. a week for.
(At that time, the union had been demanding equal pay.) He affirmed
his belief that men were not superior--indeed, he thought the
expression 'the better half' was more correct. Equal pay was to be
introduced in the public service, in three stages, by 1964.

In
the final term of the 1960 session Nordmeyer introduced a short
Reserve Bank of New Zealand Amendment Bill affirming that it was the
sovereign right of the Crown to control currency and credit. This
measure was less of a genuine reform than a ritualistic propitiatory
gesture to Labour's credit reform past and credit reform supporters.

.............A
political scientist has commented that to the Labour leaders the 1958
budget was 'a matter of morality'. To reverse the policies of that
year before the imbalances of the economy had been corrected would be
to cast doubt on the government's original assessment of the problem.
But the terms of trade had begun to improve almost from the time of
that budget. It seems, in the light of after-knowledge, that the
government had over-reacted in 1958--had guessed wrong. But the
economic improvement did not seem to Mr Nordmeyer to justify much
generosity in his 1959 budget. He did, however, reduce income tax, by
two stages, to about the 1957 level. By early 1960 retail turnover
was at a record level; the country was enjoying near boom conditions.
The Minister of Customs, Ray Boord, eased up on import controls. In
the 1960 budget Nordmeyer gave some hand-outs to the voters, but he
was not open-handed. Pensions and benefits were raised; so were state
employees' salaries; duties on petrol and cigarettes and sales tax on
motor vehicles were somewhat reduced. Taxes on beer, petrol, and
cigarettes

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XXVII
The Grand Old Man 1960-8

Walter
Nash was an MP to the end of his life, but power had gone. The long
reign of Sir Keith Holyoake had begun and Nash did not live to see it
end. The National government rapidly altered or reversed some of
Labour's policies. In 1961 there was mounting public criticism of the
Nelson cotton mill. Within the National Party caucus some
backbenchers, including Mr R. D. Muldoon, an assertive and loquacious
new MP, attacked the decision of cabinet to honour Labour's
agreement.

Eventually,
when the factory buildings were nearly complete, the government
cancelled the contract and paid £1.4 million compensation. In this
rough game Labour's opposition was weak, ineffectual, indeed almost
irrelevant. Nash found himself in a position, very different from
those he had adopted a generation earlier, of defending overseas
borrowing for development: 'we cannot develop this country as it
should be developed in this decade or generation out of our own
savings or out of our own capital in general. Overseas investment is
imperative....' The attack on the cotton mill would, he claimed,
deter overseas investors.

During
the major parliamentary battle of 1961 Nash was in a position much
less comfortable, though assumed with apparent ease. The government
decided that New Zealand should become a member of the International
Monetary Fund and the World Bank. This stirred up all sorts of
slumbering prejudices.

Nash's
personal feelings were still favourable to the IMF. In 1958 his old
friend A. G. B. Fisher, now a high IMF official, had written saying
that now only the Soviet Bloc, Portugal, Switzerland, Liberia, and
New Zealand remained non-members. He thought New Zealand's opposition
arose from fear of sinister American financial powers. Nash wrote
back agreeing that the opposition was emotional. He thought the time
would come when the advantages would be seen to outweigh the
disadvantages. But the Labour caucus voted against joining and Nash
found himself leading the serried ranks of anti-American leftists,
anti-American funny-money men, Social Creditites and economic
troglodytes in general. He received large numbers of letters opposing
the IMF and supporting his opposition. Fifty-eight thousand people
signed petitions to parliament, organized by the Labour Party,
opposing joining.